U.S. Retail Sales Beat Forecasts
The report showcases a consumer who is holding up despite higher borrowing costs, a cooling labor market, and an uncertain economic outlook.
U.S. retail sales accelerated in July by the most since early 2023 in a broad advance that points to a resilient consumer, even in the face of high prices and borrowing costs.
The value of retail purchases, unadjusted for inflation, increased 1 percent in July, helped by a sharp snapback in car sales, Commerce Department data showed Thursday. Excluding autos and gas stations, sales were up 0.4 percent.
Ten of the report’s 13 categories posted increases. Car sales bounced back strongly after a cyberattack on auto dealerships led to a sizable drop in June. Electronics and appliances also posted solid gains. E-commerce sales rose at a modest clip, potentially reflecting heavy discounting in the period by Amazon.com Inc.’s Prime Day and promotions from Walmart Inc. and Target Corp.
The report showcases a consumer who is holding up despite higher borrowing costs, a cooling labor market, and an uncertain economic outlook. With pandemic savings now largely gone and wage growth cooling, many Americans are increasingly resorting to credit cards and other loans to support their purchases—raising questions about the sustainability of consumer spending, especially as more people are falling behind on payments.
Earlier Thursday, Walmart raised sales guidance for the year while indicating shoppers are becoming more selective and seeking value. U.S. comparable sales for the company exceeded analysts’ estimates during the latest quarter, and CFO John David Rainey pointed out that Walmart isn’t “seeing any incremental fraying” of customers’ financial health.
| Metric | Actual | Estimate |
|---|---|---|
| Retail sales (month-over-month) | +1.0% | +0.4% |
| Sales excluding autos, gas (month-over-month) | +0.4% | +0.2% |
| ‘Control group’ sales (month-over-month) | +0.3% | +0.1% |
However, the weaker jobs market—and what it means for consumer spending, the biggest driver of U.S. economic activity—is a key factor in why the Federal Reserve is expected to start cutting interest rates next month. Measures of consumer sentiment have been subdued as the labor market cools and the presidential election nears, overshadowing progress in taming inflation.
Walmart’s latest earnings report underscores a U.S. consumer who is more discerning about discretionary purchases in light of economic uncertainty and high interest rates. Americans are also pulling back on travel, while deferring big home renovations. Retailers from Home Depot Inc. to Wayfair Inc. have signaled a weakening spending environment.
Treasury yields and stock-index spiked as the sales report and another showing declining jobless claims pointed to few signs of a weakening economy. Initial applications for U.S. unemployment benefits fell for a second week, to the lowest level since early July, potentially allaying concerns of a more marked deterioration in the labor market.
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What Bloomberg Economists Say…
“Consumers continue to spend more slowly than prior years. Going forward, we expect to see continued tepid spending focused on essentials.”
— Estelle Ou & Eliza Winger
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The retail sales report showed so-called control-group sales—which are used to calculate gross domestic product (GDP)—rose 0.3 percent in July, marking a third straight advance, though notably softer than June’s print. The measure excludes food services, auto dealers, building materials stores, and gas stations.
Not only are the retail figures unadjusted for inflation, they also largely reflect purchases of goods, which comprise a relatively narrow share of overall consumer outlays. Data due later this month will provide more details on real spending on goods and services in July.
Spending at restaurants and bars, the only service-sector category in the report, picked up to a 0.3 percent increase.
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