Retail Sales and Consumer Spending Forecast


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Retail sales rose 1.0% in June, but mostly due to price increases. After adjusting for inflation, sales fell slightly. Consumers reacted to rising prices for gasoline, food, clothing and general merchandise by reducing their purchases. Department store sales in particular were hit hard, falling 2.6% even without adjusting for inflation. Inflation-adjusted motor vehicle sales remained stable. E-commerce sales were a bright spot, rebounding strongly from a decline in May.

Restaurant sales were flat after adjusting for price increases in the second month. A return to more normal eating habits post-pandemic should continue to drive sales, although rising food and labor costs are forcing restaurants to raise prices. This will likely be a drag on their sales at some point.

Part of the weakness in inflation-adjusted sales can be explained by consumers changing their buying habits in favor of more services. Either way, this weakness is likely to continue, whether due to changes in buying habits or consumer resistance to higher prices. With retail inventories at high levels, it raises the question of whether there will be steep discounts in the upcoming holiday season.


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