The sharp decline in gasoline prices and a fall in sales of motor vehicle purchases left retail sales flat for July but consumer activity at other types of businesses picked up, a troubling sign for the Federal Reserve’s campaign to bring down inflation.
Sales across the retail sector in July were flat with the prior month, the Commerce Department said Wednesday. Compared with a year ago, sales are up 10.1 percent.
A big part of the flat-lining was due to falling sales as gas stations, similar to the way gas prices kept the headline inflation figure announced last week flat. Excluding gas stations, retail sales rose 0.4 percent in July.
Sales of motor vehicles and parts were down 1.7 percent for the month, despite a big increase in the production of cars and trucks reported by the Federal Reserve Tuesday.
Excluding autos and gasoline, sales were up 0.7 percent. Compared with year ago, retail sales minus gas and autos are up 9.3 percent.
Retail sales excluding gas and autos have grown month-to-month in every month this year, an unusually long unbroken period of growth. This has helped feed inflation in consumer prices.
The retail sales figures are seasonally adjusted but not adjusted for inflation.
Sales rose 0.2 percent at furniture stores and 0.4 percent at electronics stores. Sales were up a robust 1.5 percent at home improvement and garden centers.
Grocery store sales rose 0.2 percent, which was less than the 1.3 percent month-to-month inflation reported for the year. This indicates households are paying more but buying less. The annual gain in grocery store sales in 9.2 percent, also below the 13.2 percent year-to-year gain in prices.
Sales were up one-tenth of a point in the category that covers books stores, hobby stores, and sporting goods stores.
Gas station sales fell 1.8 percent in July but they are up 39.8 percent from a year ago.
Sales at general merchandise stores fell 0.7 percent. Within that category, department store sales fell 0.5 percent.
Apparel retailers saw sales drop 0.6 percent. This figure is even worse when viewed in light of prices dropping 0.1 percent. Combined, the figures suggest that sales were extremely weak at clothing stores.
Sales were up one-tenth of a point at bars and restaurants. Compared with a year ago, however, sales are up 11.6 percent.
Sales were strong at nonstore retailers, which includes online sales. These were up 2.7 percent in July, boosted by Amazon’s Prime Day, and are up 20.2 percent compared with last year.
The overall picture indicates that the fall in gas prices has boosted purchases at at home-oriented merchants, including furniture stores, electronic stores, and home improvement stores.
There’s little indication, however, that consumer demand has cooled significantly. That suggests that the Federal Reserve’s rate hikes have not yet put significant downward pressure on consumer inflation. Very likely a robust jobs market—the U.S. economy added 528,000 jobs in July and unemployment fell to 3.5 percent—continues to support consumer spending, even if the appetite for big ticket items like cars and houses is fading. This increases the likelihood that the Fed will have to tighten monetary policy enough to trigger a substantial increase in unemployment to bring down inflation.
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