Retail Sales Surprisingly Jumped in July

U.S. consumers have been showing signs of being tapped out financially, but it turns out they have some firepower left to keep spending, at least for the moment.

The volume of retail sales rose 1% in July from June to $709.7 billion, the highest monthly jump since January 2023, the Census Bureau said Thursday. That was more than the 0.3% increase forecasters had expected according to a survey of economists by Dow Jones Newswires and The Wall Street Journal.

Much of the surge came from a 3.6% increase in auto sales, which bounced back after slumping in June because of a software outage at dealers. Setting aside motor vehicles, parts, and gasoline, retail sales were still up 0.4%, suggesting that consumers’ finances are resisting economic shockwaves.

Why Do Retail Sales Matter?

Economists closely watch consumer spending because it’s the main engine of the economy, making up about 70% of the gross domestic product. The trend of consumer spending can help determine whether the economy grinds into a recession with job losses, or stays afloat.

A raft of worse-than-expected data on manufacturing, construction spending, and employment had made a recession look more likely, showing the effects of high interest rates on the economy and prompting a stock market selloff.

Can It Last?

The healthy retail spending in July, along with the continued downward trend of inflation, could allay some of those concerns, but economists still expect sales to slow down as the year goes on. Consumers, battered by inflation and a tougher job market with lower wage hikes, have increasingly relied on credit card debt to fuel spending, and are having more trouble paying it back.

“The resiliency of the U.S. consumer was on full display in July,” Jay Hawkins, senior economist at BMO Capital Markets, wrote in a commentary. “Nonetheless, we expect real consumer spending growth to moderate in the second half of this year amid slower job growth, rising unemployment and record-high credit card debt.”

The sales may also reflect how well retailers have adapted to the changing economic landscape. Many retailers, including Amazon (AMZN), Target (TGT), and Walmart (WMT) have offered more deals and discounts to appeal to cash-strapped customers said Claire Tassin, retail analyst at consumer research firm Morning Consult.

“Consumers have been extraordinarily resilient through this inflationary period,” she said. “Prices are high, and people are feeling that strain, so retailers have been responding accordingly.”