Retail sales slid in July amid jump in COVID-19 cases
Consumers are pulling back on spending, a sign the latest COVID-19 wave is hurting the U.S. economy. Retail sales fell 1.1% in July, the U.S. Commerce Department reported on Tuesday, a much larger drop than the 0.3% decline Wall Street analysts had expected.
The report is the first glimpse into whether a surge in COVID-19 cases in July has kept people from heading out to shop. At the end of July, the U.S. Centers for Disease Control and Prevention began recommending that even vaccinated people start wearing masks indoors in public places due to the Delta variant causing a spike in COVID-19 cases.
"Recent data suggest that the spread of the Delta variant has driven a renewed plunge in consumer confidence in early August, suggesting that retail spending will remain under pressure," Andrew Hunter, senior U.S. economist with Capital Economics, told investors in a report. "Moreover, that comes at a time when consumption was already likely to be weighed down by the withdrawal of fiscal support and surging prices eroding purchasing power."
According to Tuesday's retail report, spending fell at stores that sell clothing, furniture and sporting goods in July.
The travel sector is also taking a hit. After a rebound this summer, people are again canceling plans for trips because of the surging number of COVID cases. In a recent survey, 27% of respondents said they postponed a trip and more than 54% said the Delta variant has made them less interested in traveling right now.
Economic growth has been strong this year as the U.S. rebounds from the steep downturn last year due to the pandemic. Employers in June posted more than 10 million openings, up from 9.5 million the previous month and the highest level recorded in the two decades the Labor Department has tracked the data.
Hiring also boomed in July, although that was before the Delta variant drove a resurgence of COVID-19 across the U.S. Employers added 943,000 jobs last month, with the nation's unemployment rate falling sharply to 5.4%.
In another positive signal, U.S. factory production in July posted the strongest gain in four months, reflecting a surge in manufacturing at auto plants that are still wrestling with major supply chain problems.
Manufacturing output increased 1.4% in July following a decline of 0.3% in July, the Federal Reserve reported Tuesday. It was the best showing since a 3.4% gain in March.
Lydia Boussour of Oxford Economics expects consumer spending in the second half of the year to remain healthy, while predicting that it is likely to cool.
"Consumers have learned to live with the virus and will likely continue to spend heartily, relying on their healthier finances and $2.5 trillion in excess savings," she said in a research note.
