Prices at the pump fall, and consumption stabilizes
Americans kept their spending in check in July as lower gasoline prices allowed them to buy other goods, which will be a factor when the central bank tightens monetary policy again in September.
Spending by U.S. households at stores, gas stations, bars and restaurants amounted to USD 682.8 billion in July, the same as in June, according to data released Wednesday, August 17 by the Commerce Department.
“The retail sales base remains solid,” commented economist Kathy Bostjancic of Oxford Economics.
“People seem to have used some savings from lower gasoline prices to spend more on other items,” noted Ian Shepherdson of Pantheon Macroeconomics in a note.
On the other hand, gas stations recorded a 1.8% drop in sales compared to June.
Car and parts manufacturers complained about the decrease last month (-1.6%). Automobile production has been slowed down for months by the shortage of semiconductors. Still, factories have been running better in July, according to figures published on Tuesday, 16 August by the Fed, which should allow sales to rise again in August.
Removing these two categories, retail sales are up 0.7%.
In particular, U.S. consumers spent more at building and garden supply stores (+1.5%).
These figures take into account the total amount spent but are not adjusted for inflation, meaning that households are left with a lesser basket for the same amount spent.
As for inflation, it slowed down in July to 8.5% over one year and is even zero over one month. But it remains very high, close to 9.1% of June, a record for over 40 years.
Spending in bars and restaurants is up only a small 0.1%. Other services, such as airline tickets, hotels and leisure activities, are not included in these figures.
Services had been neglected since the beginning of the pandemic in favor of goods, but, as the health situation improves, they “will continue to be a driver of consumption growth, with consumers returning more to their pre-pandemic spending on services, such as restaurants and travel”, anticipates Kathy Bostjancic.
In the face of this inflation, consumers are changing their habits. John David Rainey, chief financial officer of the retail giant Walmart, explained on Tuesday, 16 August, that consumers are increasingly opting for less expensive items within the same product range, particularly in the food sector.
Retail sales are an indicator that is closely watched by the U.S. Central Bank (Fed), which is trying to slow down the high inflation by raising its key rates to increase the cost of credit for individuals and businesses.
The goal: to slow down consumption and thus reduce the pressure on prices.
At its next meeting, on September 20 and 21, the institution is expected to raise its key rates again. These consumer figures argue for a further sharp rise, according to Kathy Bostjancic.
The minutes of the Fed’s last meeting on July 26-27 were released on Wednesday, August 17, and showed that central bank officials plan to continue to raise rates, although they believe that “at some point” it will be necessary to slow the pace.
They also spoke of the “risk that (the Fed) may tighten policy more than necessary” and stressed that getting inflation to slow “will certainly take time,” according to the “minutes.
On Tuesday, August 16, US President Joe Biden signed into law his vast investment plan on climate and health, called “Inflation Reduction Act”, which includes 370 billion USD to reduce greenhouse gas emissions by 40% by 2030 and intends to partly correct the huge inequalities in access to health care in the United States, in particular by lowering the price of drugs.