Daily Management Review

July US Retail Sales Drop Due To Automobile Shortages And Shift In Spending To Services


July US Retail Sales Drop Due To Automobile Shortages And Shift In Spending To Services
Shortage of motor vehicles depressed sales in July in the United States, which along with the waning impact of a boost to consumers spending prompted by the reopening of the economy and stimulus checks resulted in a drop in retail sales for the month in the country.
The numbers suggested a slowdown in the recovery of the economy going into the third quarter.
A shift of consumer spending from goods to services was also reflected by the weak sales reported by the Commerce Department recently. The sale of goods component of consumer spending is primarily accounted for in retail sales data and sale of goods accounts for a small portion as the larger services sector comprises of bulky services such as healthcare, travel and hotel accommodation which makes up the rest.
Most education districts are reverting to in-person learning as the school year is set to get into full swing later in August. Therefore it is expected that consumer spending in e country is likely to exhibit strength and help the recovery of the economy even as Covid-19 cases and related hospitalization continue to increase in the country, bringing down consumer sentiment this month to its lowest in a decade.
"If anything, today's data suggests that spending is not keeping pace at the start of the third quarter after the fiscal stimulus-fueled and re-opening-led surge in consumption growth in second quarter," said Kevin Cummins, chief U.S. economist at NatWest Markets in Stamford, Connecticut.
"We still expect sales to bounce back for the quarter as a whole. Spending will benefit from recent strength in job gains and a boost from back-to-school spending as kids begin to return to in-school classrooms."
According to data from the Commerce Department, there was a drop of 11 per cent in retail sales last month. Revised data for June showed a 0.7 per cent growth in retail sales compared to the previous report of a growth of 0.6 per cent.  Retail sales are 17.2 per cent above their pre-pandemic level.
According to analysts polled by Reuters, the economy was expected to record a drop of 0.3 per cent in retail sales for July. The growth of retail sales for July was 15.8 per cent year op n year. 
There was a 3.9 per cent drop in July in receipts at auto dealerships while it has also declined by 2.2 per cent in the previous month. A global shortage of semiconductors has hit production of motor vehicle production.
However, not all was bad for the auto sector. An 11.2 per cent rise in motor vehicle output for July was reported on Tuesday in a separate data set by the Federal Reserve because auto companies either pared or canceled annual retooling shutdowns to work because of the global chip shortage resulting in a boost in manufacturing production in July.
There was a 3.1 per cent drop in online retail sales which was partly because of the pulling forward of its Prime Day to June from July by Amazon.com. There was a 2.6 per cent drop in sales of clothing last month. Analysts however expect a pickup in clothing sale in August with parents likely to shop for the new school year. Qualifying households in mid-July started receiving money under the expanded Child Tax Credit program, which will run through December.