Americans' spending at retailers slid to $618 billion in July, missing economist forecasts

• Spending at retailers and restaurants fell 1.1% in July to $617.7 billion, the Census Bureau said Tuesday.
• Economists expected sales to fall 0.2%. The drop suggests rising COVID cases slowed the US recovery.
• Consumer spending counts for 70% of economic activity, making retail sales a key measure of the rebound's pace.

Americans' spending fell more than expected in July, suggesting the latest rebound in COVID cases could hamper the US economic recovery.

Retail sales fell 1.1% to $617.7 billion last month, the Census Bureau announced Tuesday morning. Economists surveyed by Bloomberg expected sales to fall 0.2% to roughly $620 billion. The reading marked the second decline in three months and dragged sales further from April's record high of $629 billion.

June sales were revised to $624.7 billion from an initial print of $621 billion, suggesting somewhat more strength in retail during the summer than July's headline miss would suggest.

Spending at auto dealers and parts vendors fell 3.9% through the month. Sales at clothing and clothing accessories stores slid 2.6%, and spending at restaurants and bars rose 1.7% last month.

Consumer spending counts for roughly 70% of economic activity in the US, making retail sales a key measure for the recovery's strength. Sales rebounded strongly from their early pandemic crash through spring 2020 as stimulus checks included in the CARES Act drove spending higher. Direct payments included in the two following aid packages similarly boosted spending, and sales hit a record high in April 2021 as the country began reopening.

Spending has since dipped as overwhelming demand butts heads with supply bottlenecks. Shortages of products ranging from semiconductors to lumber cut into businesses' ability to service Americans' spending spree. The imbalance also helped inflation climb to its highest level since 2008, though the latest reading suggests price growth possibly peaked in June.

Recovery slowing down

The Tuesday sales report joins other indicators suggesting the US recovery is sputtering out. Data out Friday showed Americans bracing for a dire wave of Delta cases and more economic fallout. The University of Michigan's consumer sentiment index fell to 70.1 in early August from 81.2, hitting the lowest level since 2011 and marking the largest one-month decline since virus lockdowns began in April 2020.

The slide shows "a stunning lack of confidence" and was likely powered by an emotional response to soaring cases, Richard Curtin, chief economist at the university's Surveys of Consumers, said. Dashed hopes that vaccines would quickly counter the pandemic turned into negative outlooks for personal finances, the country's future, and unemployment, he added.

In labor-market data, filings for unemployment benefits have mostly flatlined after months of steady decline, suggesting Americans are staying on the sidelines while job openings sit at record highs. Initial jobless claims fell slightly to 375,000 in the first week of August, matching forecasts but still landing above the pandemic-era low.

Still, some experts aren't all worried just yet. It's too early to determine whether the recovery is on the ropes, and other factors certainly played a role in July's weaker spending, Ian Shepherdson, chief economist at Pantheon Macroeconomics, said.

"It's impossible to separate the impact of the fading stimulus boost from the possible hit due to the Delta variant, which began to hit real-time indicators like restaurant diner and airline passenger numbers in late July," he said. "A Q4 rebound is a decent bet, though, assuming the Delta surge is over by then."