Overall retail sales during July were down 1.1% seasonally adjusted from June but up 15.8% year-over-year. That compares with an increase of 0.7% month-over-month and an increase of 18.7% year-over-year in June.

Despite occasional month-over-month declines, sales have grown year-over-year every month since June 2020, according to Census data.

National Retail Federation (NRF) president and CEO Matthew Shay notes July retail sales showed slight deceleration in spending, but nothing to derail NRF’s outlook for a record year.

NRF chief economist Jack Kleinhenz adds: “Despite this monthly dip, the economy has rebounded quite well and is more than just on the mend. The consumer has continued to be resilient and recent price increases brought on by constraints in the supply chain have not dampened the robust demand seen during the past year. If retailers could find more inventory, they could sell it.

“Going forward, consumers are a bit fearful again as we approach another possible wave of Covid-19 infections, but they’ve learned to live with the virus and shopping continues. The delta variant could impact local markets, especially where vaccination rates are low, but doesn’t appear likely to show up in the national data.”

The shift to spending on services was expected as more of the economy reopened, and this year’s move of the Amazon Prime Day promotion to June may have siphoned off some sales that normally come in July. But Kleinhenz said consumer finances are in good shape with a cushion from paying off debt and building up savings. Employment and wages have seen recent back-to-back increases, and advance child tax credit payments going out for the second month in a row should provide a bump for spending. Solid back-to-school spending contributed to July’s results and is expected to spill over into August as well.

NRF’s calculation of retail sales – which excludes automobile dealers, gasoline stations and restaurants to focus on core retail – also showed July was down 1.1% seasonally adjusted from June but showed that the month was up 9.5% unadjusted year-over-year. That compared with a month-over-month increase of 1.1% and a year-over-year increase of 12.8% in June. NRF’s numbers were up 13% unadjusted year-over-year on a three-month moving average.

For the first seven months of the year, sales, as calculated by NRF, were up 15.5% over the same period in 2020. That is consistent with NRF’s revised forecast that 2021 retail sales should grow between 10.5-13.5% over 2020 to between $4.44-$4.56 trillion.

July sales were down in all but two categories on a monthly basis but up across the board year-over-year, led by increases at clothing, electronics and furniture stores.

Clothing and clothing accessory stores were down 2.6% month-over-month seasonally adjusted but up 45.8% unadjusted year-over-year.

Slowing momentum

Neil Saunders, managing director of GlobalData, notes July was another good month for retail with total sales growing by 15.9% over the prior year, some US$87.6bn in monetary terms.

“On a two-year basis, sales are up by 19.7% or by $104.9bn, so the sector remains comfortably above pre-pandemic levels. However, there is now a very clear sign that the momentum which has propelled the sector over the past few months or so is slowing and that growth rates are moderating as a result. To be clear, this is not catastrophic and it in no way signals anything near a contraction for retail, it just means that the 25% plus growth seen in March, April and May will become a thing of the past.

“None of this should come as any surprise as some of the drivers of exceptional demand, including the stimulus windfall and enhanced benefits, are now unravelling. This, along with inflation, has made consumers more conscious about their spending. On top of this, concerns about the delta variant have also weighed down consumer sentiment which has taken some of the luster off the reopening dividend.

“However, along with the negatives there are positives which are keeping retail firmly in the black. Foremost among these is a continued transfer of spending from services to products. Expenditure on areas like travel and vacations as well as personal care services remain suppressed, and a high percentage of the money not spent has been diverted to the core retail sector. The savings rate is also elevated which means better-off households still have a buffer of cash that can be used in retail. Although if consumer sentiment continues to drop, it will become more of a challenge to entice them to part with their money.

“Within core retail, which excludes food service, automotive and gasoline, sales increased by 9.5% on a year-over-year basis. This is the first single-digit growth rate since February and marks the start of a return to more normalised, but not completely normal, patterns of trading. Under the headline number growth remains very choppy as categories bump up against variable prior year performances.

“Apparel, for example, continues to lead the way with a 45.8% uplift in sales from clothing shops. This comes off the back of a very weak prior year when sales were still suppressed from the pandemic. Fortunately, the recovery is broad-based with people refreshing all sorts of items in their closets, rather than just focusing on garments for social and work occasions – which may take a hit if the delta variant continues to surge.

“Looking ahead, while it is likely that growth will continue to be moderate, there is no cause for alarm on the sales front. In the second half of the year, the bigger challenge for retailers will be in meeting consumer demand in terms of having sufficient staff in stores and fulfilment centres, and ensuring there is enough inventory despite various shipping and transportation issues. Managing the cost and supply sides of the business will be the real pressure points.” 

By Just Style