A decline in retail spending in July may signal a shift in spending habits as consumers straddle a strengthening economy and virus-related concerns.
Retail sales declined 1.1% in July compared to June, with the biggest decreases coming from motor vehicle and parts dealers, as well as non-store retailers (a proxy for e-commerce), which declined 3.9% and 3.1%, respectively. While some of the drop is likely attributed to consumers navigating inflated prices resulting from global supply chain constraints, the broader theme is the fading boost from government stimulus checks that drove spending across the board earlier this year. Spending in most major categories exceeded pre-pandemic levels despite the July dip.
In terms of early back-to-school shopping data, clothing store sales this July topped $25.8 million versus $17.2 million last July. This raises a number of questions: Are consumers spending more on clothing in anticipation of school being in-person this year? To what extent are concerns over the delta variant still holding consumers back? Will we see more spending in that segment later in the fall or into the traditional holiday season if the variant slows down? We’ll continue to watch that data.
Categories with increases in July suggest consumers are also diverting spending to more service-based activities. Spending at gasoline stations and food service and beverage places rose 2.4% and 1.7% in July, respectively, while food store spending declined 0.7%. With summer travel and mobility improving in the early summer, this trend may indicate that consumers are more likely to move away from lockdown-type spending behaviors.
Looking ahead, retailers will need to stay nimble as consumers’ wallet share continues to be spread between service spending and rising costs. Data on the spending mix between goods and services will not be available until later this month, however inflation numbers released last week indicate that rising gasoline and rent costs may place further constrains on consumers’ budgets in the coming months.
Finally, while the July retail sales numbers don’t capture the full impact the delta variant has had on U.S. consumers and businesses, any slowdown in mobility arising from the spread of the variant and related restrictions is unlikely to have the same windfall some retail categories experienced earlier in the pandemic without another boost from a stimulus program.