Retail sales slump in July. COVID effect? Or just shifts in spending?

Remember me saying that July’s retail sales report grew in importance after a drop in consumer sentiment last week? Yeah, about that….

Retail sales dropped 1.1% last month. Data for June was revised up to show retail sales increasing 0.7% instead of rising 0.6% as previously reported. Retail sales are 17.2% above their pre-pandemic level.

Economists polled by Reuters had forecast retail sales slipping 0.3%. Sales increased 15.8% compared to July last year.

Receipts at auto dealerships fell 3.9% after declining 2.2% in June. Motor vehicle production has been hampered by a global shortage of semiconductors.

Ugh in general, and in particular, those July figures continue a big cutback in auto sales in recent months.

That being said, the Federal Reserve reported manufacturers of autos and other goods cranked back up in July, so perhaps some of the bottleneck will be alleviated in the near future.

In July, manufacturing output increased 1.4 percent; excluding the large gain in motor vehicles and parts, manufacturing output moved up 0.7 percent. The index for overall manufacturing in July was 0.8 percent above its pre-pandemic level. Production of durable goods rose 2.4 percent in July. In addition to the increase for motor vehicles and parts, gains of 1.5 percent or more were recorded by machinery; electrical equipment, appliances, and components; aerospace and miscellaneous transportation equipment; and miscellaneous manufacturing. The output of nondurable goods rose 0.3 percent; the largest increases were recorded by textile and product mills and by plastics and rubber products. The output of other manufacturing (publishing and logging) increased 0.2 percent. The index for mining advanced 1.2 percent, about the same pace it has averaged over the past 12 months. The index for utilities fell 2.1 percent in July, as an unusually hot June gave way to a July with temperatures somewhat below normal.

But do consumers still need or want those goods? The retail sales report indicates that they were still cycling away from industries that did well in the COVID World, and spent more money on entertainment and other “going out” places, before this next wave of infections started to hit full force.

Sales at building material stores decreased 1.2%. Receipts at sporting goods, hobby, musical instrument and book stores declined 1.9%.

But consumers increased spending at restaurants and bars, leading to a 1.7% rise in receipts. Sales at restaurants and bars increased 38.4% compared to July 2020. Restaurants and bars are the only services category in the retail sales report.

And that continues the unwinding of disruptions that we saw when COVID first broke out in early 2020. The types of businesses that boomed through April have given back some of their gains, while spending at bars and restaurants keeps climbing.

I said I wasn’t going to worry about COVID breakouts and GOP-planted inflation concerns leading to any type of economic slowdown until we saw evidence of slowing consumer behavior. Now this bad retail sales report comes along, so we need to keep our guard up to see if other bad signs start appearing, especially with August’s COVID numbers being much worse across the country.

And I think we need to recognize that just because we had a Biden Boom in the first half of 2021, its sustainability isn’t quite guaranteed – especially as long as some COVID-iots refuse to join the Silent Majority of us who did our parts to fight this scourge. So we need to keep building and giving stability to the many who have yet to fully recover from the economic damage that they took on in 2020.

GOPs may want to cry crocodile tears about inflation and the US budget deficit in an attempt to stop those supports from coming with the infrastructure and social services bills in Congress. But that’s because GOPs want austerity to be imposed to help their chances of winning in 2022, and this slip in retail sales should remind us that just because our economy has grown for most of the last 16 months, it doesn’t mean that we are fully recovered.

And as we’ve seen in the last month, what hit the economy in 2020 is still a threat in 2021. Individuals and policymakers need to keep attacking until that viral threat is beaten down again.