Consumers Spend Aggressively in July

Retail sales jumped 0.5% in July after being down slightly for the month of June. The big surprise was in vehicle sales, which rose after plummeting on a per-unit unit basis during July. Price increases accounted for much of the increase in spending on vehicles. Steel and aluminum tariffs have begun to work their way into prices and compound in the supply chain. Vehicle producers have announced more price hikes for August and the start of the new model year.

Retail sales excluding the volatile vehicle category jumped 0.6% in July. Gains were broad-based with the exception of spending on furniture, personal care, and sporting goods and hobby stores. The bankruptcy and closing of Toys "R" Us stores put a damper on spending on toys during the month.

In a positive turn of events for traditional retailers, they posted stronger gains than big-box discounters. Inflation is eating into average wage gains but the number of paychecks per household is rising, which is helping more consumers return to stores. There was also some trade-off between online and in-store shopping as malls saw more foot traffic in July. I ventured out to a mall or two myself; it was packed. I finally convinced my son who was home from college to replace a few frayed t-shirts.

Consumers showed a lift in their spirits by traveling and spending more on gasoline in response to lower prices at the gas pump. Spending at restaurants and bars was also strong as anecdotal reports on travel during the Fourth of July week hit record highs. Vacations are back in style; I need to catch up on this trend.

Bottom Line
A surge in the number of paychecks offset the crimp from another month of tepid wage growth in July and boosted consumer spending. Access to credit is easing despite the Federal Reserve’s efforts to raise interest rates. I wouldn’t be surprised to see a drop in the saving rate, which surged on the back of revisions, once we see the full data for spending on services in July.

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