U.S. retail sales rose strongly in July, driven by strong demand for motor vehicles and big promotions by Amazon and Walmart. However, a weak labor market and rising commodity prices risk dampening consumer spending growth in the third quarter.
The U.S. Commerce Department’s Census Bureau said on Friday that retail sales rose 0.5% last month after being revised up to 0.9% in June. Analysts polled by Reuters had expected a 0.5% increase, compared with an initial 0.6% increase in June. Part of the increase may have been due to higher prices due to tariffs, not higher sales volumes.
J.P. Morgan analysts said the surge in auto sales in July was driven by early purchases of battery-electric vehicles before the federal government’s tax credit expires on Sept. 30. Amazon and Walmart are also running big promotions to lure inflation-stricken consumers, including deep discounts on back-to-school essentials. Amazon extended its sales period to 96 hours, up from the usual 48, with aggressive deals on categories ranging from clothing to electronics.
However, the risk of a slowdown in consumer spending is growing as spending is now largely driven by middle- and upper-income households. The Bank of America Institute reported that the wage gap between low- and high-income households is widening, indicating that the labor market is “hardest hit” for low-income workers. While these groups may not be losing jobs, weak labor demand is pushing down wages and reducing their hours.
Retail sales excluding autos, gasoline, building materials and food services rose 0.5% in July after being revised up to 0.8% in June.
