• Retail sales growth slowed in July, rising by 1.2% for the month, down from 8.4% in June. This came in below the consensus forecast of 1.9%.
  • The volatile categories saw mixed fortunes last month. While spending on motor vehicles and parts (-1.2%) and building materials and equipment (-2.9%) declined, gasoline stations (+6.2%) and food services and drinking places (+5.0%) rose in July.
  • Excluding these categories, retail sales increased by 1.4% month-on-month. The main contributors to the increase were furniture and home furnishing (+9.1%) and clothing and accessory stores (+5.7). Sporting goods (-5.0%) and general merchandise store (-0.2%) sales weighed on retail sales in July.

Key Implications

  • After posting impressive gains in May and June, retail sales rose at a slower pace in July. This was no surprise, as the pent-up demand, unleashed as states reopened their economies, has largely been satiated. The level of retail sales is now above pre-pandemic levels.
  • An important factor behind the rebound in retail sales were the income support programs (i.e. one-time checks and expanded unemployment insurance benefits) enacted by Congress as part of the CARES Act. This injection of cash enabled consumers, especially those who had lost their jobs due to the pandemic, to resume spending as the economy opened up. Indeed, credit and debit card transaction data confirm that consumers used these income supplements to finance spending over the past several months.
  • With the $600 per week unemployment insurance top-up expiring at the end of July, over 16 million Americans will see a sizeable drop in their monthly cash inflow in August. The executive order signed by President Trump last week will provide a partial offset, returning half of the top-up to their pockets. However, this will only provide 50% of those unemployed with at least the same amount of income as when they had their jobs, the rest will see an income shortfall. What is more, the funds allocated by the executive order could run out in six weeks and these consumers will almost certainly pull back on spending if income declines. Congress must be ready to provide further assistance to avoid a drop in spending and a deepening of the crisis.


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