By Geoffrey Smith
Investing.com -- U.S. retail sales held up better than expected in July, as a drop in gasoline prices allowed consumers more room for spending on other things.
Overall retail sales were unchanged from June, but rose 0.7% on the month when sales of gasoline and automobiles are excluded from the calculations. That suggests that sales kept comfortably ahead of inflation during the month, given that the core consumer price index only rose by 0.3% in July.
The Census Bureau said core retail sales rose 0.4% on the month, clearly ahead of the 0.1% drop expected by analysts ahead of time.
The figures suggest that consumer spending is still strong, despite signs of cooling off across more and more sectors of the economy.
"If you’re looking for recession, you won’t find it here," said Pantheon Macroeconomics' Ian Shepherdson in a note to clients. "Our preferred measure of core sales, which strips out autos, gasoline, and food, rose 0.8% in July, and at a hefty 9.3% annualized rate in the three months to July, compared to the previous three months."
Sales at sellers of building materials and garden supplies performed particularly well with a 1.5% rise on the month, while nonstore sales, which include e-commerce, rose 2.7% in a month that included Amazon's (NASDAQ:AMZN) regular Prime Day promotion.
By contrast, there was evidence of heavy discounting among apparel companies and department stores in particular after they misjudged their inventory needs earlier in the year, failing to anticipate the squeeze on disposable income from the surge in inflation. Sales at clothing stores fell by 0.6% on the month, while department store sales also fell by 0.5%.
The squeeze on incomes may also have contributed to a weak showing by restaurants last month. Food services and dining venues posted a gain of only 0.1%, a clear slowdown after months in which consumers took advantage of the easing of pandemic restrictions to socialize more.
A 1.7% drop in auto sales, meanwhile, appears to have reflected a more benign development, with the price of used cars finally falling again as manufacturers slowly get on top of the supply chain problems that plagued them for the last two years.
"Used vehicles (are) finally depreciating in value again," said KPMG chief economist Diane Swonk.