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‘Disturbingly High’ Inflation Shadows July’s Retail Sales Report

U.S. retail sales totaled $682.8 billion in July, essentially flat from the previous month on a seasonally-adjusted basis, while apparel and accessories retailers and department stores came up short.

On a seasonally adjusted basis, sales at apparel and accessories stores fell 1 percent to $25.89 billion from $26.04 billion in June, the U.S. Department of Commerce reported Wednesday. Department store sales dipped slightly to $11.19 billion from $11.25 billion. Furniture and home furnishing stores saw an incremental increase to $12.12 billion from $12.10 billion. Online sales rose 3 percent to $110.62 billion from $107.77 billion.

The retail sales data is adjusted for seasonal variances, but the numbers are not adjusted for inflation. July’s retail sales did show a 10.3 percent increase from July 2021.

Wells Fargo economists said that after adjusting for sharply lower prices of some goods, such as gasoline, “real retail sales” actually rose 0.6 percent for the first gain in three months.

But while they expect consumer spending to last into August, they expect a “sharp spending retrenchment” to appear “this autumn.”

“[O]nce kids return to school and the bills come due, households will begin to tighten their belts,” they added. “Even as inflation is showing signs of moderating, it will do so only slowly.”

Gas prices that began easing in July gave consumers a bit of a reprieve, though inflation continues to drive higher prices elsewhere.

Executives on Walmart‘s second quarter earnings call Tuesday said grocery is gaining a larger wallet share while general merchandise sales shrank. And Target executives said Wednesday that the chain will double down on food and beverage for the foreseeable future.

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Naveen Jaggi, JLL’s Retail Advisory Services president, expected back-to-school shopping to drive July’s sales. The rise in nonstore sales suggests consumers were “likely buying school supplies and clothes online,” Jaggi added.

The JLL exec expects August will be the biggest back-to-school shopping month this year as consumers hunt for sales, coupons and deals closer to the return to classroom learning.

“Consumers are adapting to higher prices by prioritizing essentials like food and back-to-school items, and retailers are working hard to absorb the impact of higher costs and help customers stretch their hard-earned dollars,” Matthew Shay, president and CEO at the National Retail Federation (NRF), said. Jack Kleinhenz, chief economist for the industry trade group, said inflation is still “disturbingly high” even as it lets up.

Walmart CEO Doug McMillon this week said middle- and higher-income U.S. consumers are increasingly showing value-oriented behavior.

Katie Thomas, who heads up global strategy and management consulting firm Kearney’s internal think tank, Kearny Consumer Institute, said most consumers, including those with deeper pockets, are cross-shopping at Walmart and even dollar stores.

“Consumers have specific categories where they want to splurge and where they want to save, across incomes. We’ll see these consumers expand the categories where they are willing to trade down,” she said.

How inflation will eventually shake out across the retail landscape is yet to be determined. A report from the Federal Reserve Bank of New York last week said that household debt in the second quarter rose 2 percent from the first quarter, and of the $16 trillion, $890 billion is attributed to credit card balances. Credit card debt rose by $46 billion from the first quarter, representing a 13 percent increase year-over-year for the largest spike in more than 20 years. That suggests that some consumers need to resort to credit cards to help pay for necessities.