Washington (United States) (AFP) – US retail sales gave their weakest showing in more than a year and consumer sentiment plunged, data showed Friday, as households battered by fallout from President Donald Trump’s Iran war curbed spending and raised their expectations of inflation. Total US retail sales were down 0.6 percent in July from the previous month, at $763.6 billion, said the Department of Commerce.
A new US consumer sentiment survey by the University of Michigan showed confidence dropped by around eight percent in August, ending two months of gains. The United States and Israel launched the war against Iran on February 28, plunging the Middle East into conflict and sending energy prices skyrocketing as Tehran retaliated by attacking Washington’s Gulf allies and snarling a fifth of the world’s oil and gas supplies. The war has sent inflation — already elevated from the US Federal Reserve’s long-term two-percent target — surging, and has hit American households battered by years of high prices hard.
Expectations for inflation in the year ahead ticked up from 4.2 percent in July to 4.3 percent in August, the University of Michigan survey showed. That is substantially higher than pre-war levels. Trump’s Republican Party faces a stern test at upcoming midterm elections in November, with Democrats seeking to wrest control of both houses of Congress. Trump’s handling of the economy will be a key issue at the polls.
– ‘Disappointing’ – Analysts had expected a 0.1 percent uptick in retail sales in July, and all eyes are on US consumer health as households grapple with inflation while drawing down on their savings. Excluding sales at auto dealers and gasoline stations, sales dipped 0.2 percent on a month-on-month basis. “American consumers are showing signs of fatigue. July retail sales were disappointing on all levels,” said Navy Federal Credit Union chief economist Heather Long.
Consumers likely brought forward their spending to capitalize on online sales events in June, Long said. But she warned: “Even with lower spending on gas in July, consumers weren’t eager to spend elsewhere.” US regular gasoline prices are up more than 35 percent since the start of the war, but cooled slightly in July as hopes rose for a resolution to the war. The reduction in prices sent gasoline sales down by 0.9 percent, the data showed.
Among major categories, retail sales at motor vehicle and parts dealers were down 1.8 percent from the prior month. Spending ticked down at grocery stores too, while hobby spending was lackluster. Sales at online stores tumbled 2.2 percent. Still, retail sales were up five percent from the same period a year ago. “It’s notable that in July, hobby spending was flat,” Long said. “Hobby spending is a small amount of overall retail sales, but it’s a good gauge of whether consumers have any money leftover in their budgets.”
Economist Oliver Allen of Pantheon Macroeconomics cautioned that there could be a sharper slowdown ahead. “The lift to households’ cash flows from tax refunds now is gone, higher energy prices will continue to put pressure on their finances, the underlying trend in income growth is weak, and the personal saving rate has little scope to fall further,” he said.
© 2024 AFP
