According to new official data completed by the Commerce Department, retail sales in the United States fell much more than expected in July, possibly because of automobile shortages (and a slowing of car purchases), as well as a consumer shift to spending more on services, rather than goods. However, as sales fell more than initially forecast, this has made economists worry that the economic growth anticipated for the year may already be slowing down in the third quarter.
The Commerce Department’s data reveals that retail sales dropped by about 1.1% in July after rising only 0.6% in June. While sales dropped last month, they do still remain about 17.2% above pre-pandemic levels. While many industries dropped in sales in July, the auto industry dropped the most, by about 3.9%. This drop comes after June’s drop of 2.2%.
Previously, economists thought that retail sales would only slow down by about 0.3% — not drop a whole percentage. This drop could be because of a variety of reasons, then. The purchase of cars is continuing to slow down as the nation deals with automobile shortages thanks to a worldwide chip shortage that has hampered the production of cars around the world. As a result of these material shortages, many cars have also surged in price, which has also kept consumers from purchasing.
Consumers in the United States are also diverting their attention away from goods and towards services, a trend economists have been seeing for the past few months. The third quarter is still expected to do quite well, though, especially because many parents turned back to spending money on goods for the back-to-school season. Large retail corporations like Walmart and Target are said to have been doing quite well for this year’s back-to-school season, and this will more than likely be reflected in quarter three data.
Therefore, economists believe that consumer spending will stay strong for the rest of the quarter, despite this dip in July. Consumer spending is also forecasted to continue on into the end of the year and help fuel the large economic growth in the United States.
However, there are a few signs that this year’s economic growth could already be slowing down. While back-to-school sales are supposedly doing quite well, consumer sentiment has dropped to a low not seen in a decade. As a result, consumers may slow down or stop spending as much as the year continues.
This drop in consumer sentiment is a result of continuous labor and raw material shortages, global supply chain issues, and the recent surge in COVID-19 cases around the nation because of the Delta variant. Slowly, economists are seeing the Delta variant begin to affect business activity — travel-related industries seem to be the hit the most right now — but many do believe that this will even out in some way. Of course, nobody knows what the future holds, so economists are being wary about what may happen. But even with lower consumer sentiment and the rising Delta cases, many economists are still forecasting that the United States will see a large economic growth not seen since at least the 1980s.