Has US Consumer Spending Peaked? US Retail Sales Down 1.1% in July

Larger-than-Expected Drop
Signs of Consumer Slowdown Amid Inflation Rise and Delta Variant Spread
US Stock Market Also Starts Lower

[Image source=AP Yonhap News]

[Asia Economy New York=Correspondent Baek Jong-min] The decline in U.S. retail sales in July has raised concerns about a slowdown in consumption in the second half of the year.

The U.S. Department of Commerce announced on the 17th (local time) that retail sales in July decreased by 1.1% compared to the previous month.

The decline was larger than the market expectation of a 0.3% decrease. The previous month's growth rate was revised upward from 0.6% to 0.7%.

Consumption decreased in most sectors including automobiles, clothing, sporting goods, and furniture.

Core retail sales, excluding gasoline and food, fell by 0.4% compared to the previous month. This was also significantly below the market expectation of a 0.1% increase.

June's core retail sales were also revised from an initial 1.3% increase to a 1.6% increase.

The decline in retail sales coincides with expectations of reduced economic activity due to the spread of the Delta variant. Analysts also suggest that soaring prices have led consumers to tighten their wallets.

Bloomberg News identified that consumers have begun to reduce spending on services. It also predicted that the Delta variant could suppress economic activity and limit demand in the travel and entertainment sectors.

The Wall Street Journal also noted that retail sales sharply declined due to reduced automobile purchases and the spread of the Delta variant.

The consumption slump had already been anticipated. The University of Michigan Consumer Sentiment Index released last week fell to its lowest level since April last year, indicating a potential deterioration in consumer confidence. Since consumption accounts for two-thirds of the U.S. economy, its impact on the economic situation is significant.

Fuja Siram, an economist at Barclays in the U.S., predicted, "As government support measures decrease, the pace of growth in service spending will slow significantly more than initially expected."

Bloomberg reported that economists expect consumer spending to increase at an annualized rate of 4.5%, which is a sharp slowdown compared to 11.8% in the second quarter.

The earnings report of Home Depot, a building materials distributor released on the same day, also raised concerns about a decline in consumer purchases. Home Depot's second-quarter results fell short of Wall Street expectations, and its stock price plunged 4.4%. Walmart, which has significant food sales, reported results that met expectations.

The news of weak retail sales, interpreted as a sign of an economic downturn, led U.S. stock markets to open lower. As of 9:45 a.m., the Dow Jones Industrial Average was down 0.7%, the S&P 500 was down 0.5%, and the Nasdaq was down 0.6% at the start of trading.

U.S. Treasury yields slightly declined, forming at 1.255%.