U.S. retail sales in July fell 0.6%, according to U.S. Commerce Department data released Friday. Sales were expected to rise 0.1%. On a year-over-year basis, sales increased 5%. Retail sales excluding gasoline and autos declined 0.4% in July.
Generous tax refunds this year helped cushion the blow from higher gasoline prices caused by the conflict in the Middle East, leading to strong consumer demand in the second quarter. Economists noted that those refunds have now been exhausted. The decline in retail sales last month was also something of a payback after Amazon moved its Prime Day promotion from July to June, while other retailers offered competing promotions. Gasoline prices also fell last month, weighing on revenue at service stations. Automakers reported a decline in sales volumes.
Consumer spending, which accounts for about two-thirds of the U.S. economy, has remained flat this year despite high inflation and unusually weak consumer sentiment. This is partly due to a still-solid labor market, although low-income households are feeling the effects of rising prices and growing debt more acutely than higher-income households, which benefited from a resilient stock market (+14%). Economists call this divergence a “K-shaped economy.”