WASHINGTON, Aug 14 ( ) - U.S. retail sales fell in July for the first time in nine months as the boost from big tax refunds faded, suggesting that consumer spending was slowing down and prompting economists to slash their economic growth estimates for the third quarter. The unexpected decline in retail sales reported by the Commerce Department on Friday was also payback after Amazon pulled forward its Prime Day event to June from July, with other retailers offering competing promotions. A retreat in gasoline prices also weighed on receipts at service stations.
The report added to unexpected job losses last month and mild inflation readings in bolstering financial market expectations that the Federal Reserve would not raise interest rates in September, barring upward surprises to August price and employment data. "This points to a material slowdown in real consumer spending growth in the third quarter," said Sal Guatieri, a senior economist at BMO Capital Markets. "This, together with a weaker jobs report and subdued core CPI inflation, raises the odds of the FOMC staying patient again in September." Retail sales dropped 0.6% last month after an unrevised 0.2% gain in June, the Commerce Department's Census Bureau said.
The decline was the first since last October and was the largest in 14 months. Economists polled by had forecast retail sales, which are mostly goods and are not adjusted for inflation, edging up 0.1%. Estimates ranged from a 0.5% drop to a 0.7% increase.
Retail sales increased 5.0% year-on-year in July. With the Consumer Price Index edging up 0.1% in July, economists said last month's decline in sales clearly reflected a decrease in volume. Though inflation moderated over the month, it remained significantly higher than it was last year, increasing sensitivity among consumers to higher prices.
The decline in sales was led by a 2.2% decrease in receipts at nonstore retailers. Sales at motor vehicle and parts dealers tumbled 1.8% while receipts at electronics and appliance stores fell 0.5%. Sales at service stations dropped 0.9%, reflecting lower gasoline prices.
Average prices at the pump are hovering just above $4 a gallon, down from about $4.39 early in the U.S.-Israeli war with Iran. Gasoline prices averaged $2.98 a gallon before the conflict started in February. The higher gas prices have created a cost of living crisis that is eroding consumer sentiment. In a separate report, the University of Michigan's Surveys of Consumers said its Consumer Sentiment Index dropped to 51.0 this month from 55.2 in July, ending two straight months of improvement.
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