Weak motor vehicle sales weigh upon July's U.S. retail sales
KPMG Senior Economist Ken Kim is expecting the U.S. consumer to be able to cushion the impact from COVID as long as the public’s “fear of missing out” continues to outpace the “fear of going out.”
Retail sales declined by 1.1% in July on a month-to-month basis missing expectations for a 0.3 drop. Despite the decline, both the level and growth rate of retail sales remains high up 16% from last July. So, what are the three key takeaways? First, the main culprit behind the weakness in July sales was motor vehicle sales which fell by 3.9%, owing to the semiconductor chip shortage which has left auto dealers lots barren. Without the impact of the weaker motor vehicle sales, retail sales would have been down just four-tenths of 1%. Second, the decline in goods consumption in July wasn't entirely unexpected as we expected a transition to occur away from goods towards services consumption as the recovery matures. Indeed, sales at restaurants and bars were up 1.7% in July after rising by better than 2% in June. Third, there is growing anxiety and uncertainty due to the delta variant. As long as FOGO (fear of going out) does not gain the upper hand against FOMO (fear of missing out), we expect the U.S. consumer can be resilient and cushion any near-term impact from COVID.
U.S. retail sales fell 1.1 percent for July, the main culprit for the drop was weakness in motor vehicle sales that were affected by low inventory, primarily driven by a computer chip shortage. Excluding auto sales, July’s retail sales would have been down 0.4 percent. Sales at restaurants and bars rose 1.7% in July, reflecting continued improvements in the service economy. KPMG Senior Economist Ken Kim is expecting the U.S. consumer to remain resilient and continue to cushion the impact from COVID provided the public’s fear of missing out “FOMO” continues to outpace the fear of going out “FOGO”.