# Automobile shortages, spending shift to services hurt U.S. retail sales
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2021-08-17
Category: BUSINESS
Category URL: https://financedigest.com/category/business
Meta Title: US Retail Sales Fall More Than Expected in July
Meta Description: U.S. retail sales dropped 1.1% in July, reflecting a slowdown in economic growth with a shift from goods to services spending. Despite challenges, sales are
URL: https://financedigest.com/automobile-shortages-spending-shift-to-services-hurt-u-s-retail-saleshtml

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By Lucia Mutikani

WASHINGTON (Reuters) – U.S. retail [sales fell more than expected in July as shortages depressed motor](https://www.financedigest.com/indias-tata-motors-jumps-to-a-7-month-high-on-strong-q4-jlr-sales.html "India’s Tata Motors jumps to a 7-month high on strong Q4 JLR sales") vehicle purchases and the boost to spending from the economy’s reopening and stimulus checks faded, suggesting a slowdown in economic growth early in the third quarter.

The [weak sales](https://www.financedigest.com/apples-weak-iphone-sales-drive-first-profit-miss-since-2016.html "Apple’s weak iPhone sales drive first profit miss since 2016") reported by the Commerce Department on Tuesday also reflected a rotation in spending back to services from goods. [Retail sales](https://www.financedigest.com/uk-retailers-turn-positive-on-sales-hopes-after-bleak-winter.html "UK retailers turn positive on sales hopes after bleak winter") mostly capture the goods component of consumer spending, which accounts for a smaller share, with bulky services such as healthcare travel and hotel accommodation making up the rest.

The [school year gets into full swing later in August and most education](https://www.financedigest.com/1-in-3-adults-dont-believe-school-education-prepared-them-for-adult-life.html "1 in 3 adults don’t believe school education prepared them for adult life") districts are reverting to in-person learning. As such, consumer spending is likely to remain strong and [keep the economy](https://www.financedigest.com/thomson-reuters-keeps-outlook-but-wary-of-slowing-economy.html "Thomson Reuters keeps outlook, but wary of slowing economy") growing, though rising COVID-19 cases and a recent plunge in consumer sentiment are wild cards.

If anything, today’s [data suggests](https://www.financedigest.com/dollar-firms-after-u-s-labor-data-suggests-more-rate-hikes.html "Dollar firms after U.S. labor data suggests more rate hikes") that spending is not keeping pace at the start of the third quarter after the fiscal stimulus-fueled and re-opening led surge in consumption growth in second quarter,” said Kevin Cummins, chief U.S. economist at NatWest Markets in Stamford, Connecticut.

We still expect [sales to bounce back](https://www.financedigest.com/european-junk-debt-sales-spring-back-to-life-as-sentiment-improves.html "European junk debt sales spring back to life as sentiment improves") for the quarter as a whole. Spending will benefit from recent strength in job gains and a boost from back-to-school spending as kids begin to return to in-school classrooms.”

Retail [sales dropped 1.1% last month](https://www.financedigest.com/uk-new-car-sales-rise-17-in-march-best-ever-month-for-evs.html "UK new car sales rise 17% in March; best ever month for EVs"). Data for June was revised up to show retail [sales increasing 0.7% instead of rising](https://www.financedigest.com/uks-wetherspoon-posts-13-1-rise-in-sales-for-25-wk-period.html "UK’s Wetherspoon posts 13.1% rise in sales for 25-wk period") 0.6% as previously reported. [Retail sales](https://www.financedigest.com/spains-november-retail-sales-fall-0-6-on-year.html "Spain’s November retail sales fall 0.6% on year") are 17.2% above their pre-pandemic level.

Economists polled by Reuters had forecast [retail sales](https://www.financedigest.com/russian-retail-sales-fall-deeper-jobless-rate-rises-in-sept-data.html "Russian retail sales fall deeper, jobless rate rises in Sept – data") slipping 0.3%. Sales increased 15.8% compared to July last year.

Receipts at auto dealerships fell 3.9% after declining 2.2% in June. Motor vehicle production has been hampered by a global shortage of semiconductors.

There was some encouraging news, with a separate report from the Federal Reserve on Tuesday showing motor vehicle [output surged 11.2% in July as auto makers either pared or canceled annual retooling shutdowns to work around the chip](https://www.financedigest.com/japans-factory-output-posts-biggest-fall-in-8-months-on-weak-autos-chips-sectors.html "Japan’s factory output posts biggest fall in 8 months on weak autos, chips sectors") shortage. That [boosted manufacturing production](https://www.financedigest.com/4-tips-for-creating-a-calm-workspace-to-boost-productivity.html "4 tips for creating a calm workspace to boost productivity") last month.

Online retail sales dropped 3.1%, payback after Amazon.com pulled forward its Prime Day to June from July. [Sales at clothing stores](https://www.financedigest.com/ikea-stores-owner-ingka-says-campaigns-help-boost-store-visits-and-sales.html "IKEA stores owner Ingka says campaigns help boost store visits and sales") fell 2.6%. A rebound is expected as parents shop for the new school year. Qualifying households in mid-July started receiving money under the expanded Child [Tax Credit](https://www.financedigest.com/tax-credits-for-eu-electric-vehicles-to-dominate-mondays-trade-talks-with-u-s.html "Tax credits for EU electric vehicles to dominate Monday’s trade talks with U.S") program, which will run through December.

[Sales at building material stores](https://www.financedigest.com/kfc-franchisees-in-russia-ask-govt-to-halt-sale-of-stores-to-local-operator-ria.html "KFC franchisees in Russia ask govt to halt sale of stores to local operator – RIA") decreased 1.2%. Receipts at sporting goods, hobby, musical instrument and book stores declined 1.9%.

But consumers [increased spending](https://www.financedigest.com/should-we-be-more-cautious-about-contactless-1-in-4-young-adults-with-contactless-cards-say-theyve-increased-their-spending.html "Should we be more cautious about contactless? 1 in 4 young adults with contactless cards say they’ve increased their spending") at restaurants and bars, leading to a 1.7% rise in receipts. Sales at restaurants and bars increased 38.4% compared to July 2020. Restaurants and bars are the only services category in the retail sales report.

Sales at electronics and appliance stores gained 0.3%.

[Stocks on Wall Street fell on the retail sales data](https://www.financedigest.com/stocks-sag-as-hawkish-fed-cools-china-rally-awaits-us-jobs-data.html "Stocks sag as hawkish Fed cools China rally; awaits US jobs data") and a weak earnings report from Home Depot. The dollar rose against a basket of currencies. U.S. Treasury [prices were higher](https://www.financedigest.com/wall-street-seen-opening-higher-but-u-s-recession-priced-in.html "Wall Street seen opening higher but U.S. recession priced in").

SPENDING ROTATION

Excluding automobiles, gasoline, building materials and food services, [retail sales fell](https://www.financedigest.com/italy-inflation-adjusted-retail-sales-fell-in-2022.html "Italy inflation-adjusted retail sales fell in 2022") 1.0% last month after an upwardly revised 1.4% increase in June. These so-called core retail sales correspond most closely with the [consumer spending component of gross domestic product](https://www.financedigest.com/50-of-consumers-wont-spend-more-than-20-minutes-applying-for-financial-products-online.html "50% of consumers won’t spend more than 20 minutes applying for financial products online"). They were previously estimated to have accelerated 1.1% in June.

Part of the cooling in [retail sales reflects the shift in spending](https://www.financedigest.com/valentines-day-spending-boosts-british-retail-sales-in-february-brc.html "Valentine’s Day spending boosts British retail sales in February – BRC") from goods to services like travel and entertainment, with more than 50% of the United States’ population fully vaccinated against COVID-19.

Rising infections driven by the Delta variant of the coronavirus could, however, slow the [services spending boom](https://www.financedigest.com/brand-metrics-bolsters-client-services-team-as-brand-lift-measurement-booms.html "Brand Metrics bolsters client services team as brand lift measurement booms").

The U.S. Centers for Disease Control and Prevention in late July urged fully vaccinated Americans to resume wearing masks in indoor public places in areas where the virus is surging.

We’ve long held the view that discretionary [services would lift overall consumer](https://www.financedigest.com/do-consumers-want-robo-advisory-services.html "DO CONSUMERS WANT ROBO-ADVISORY SERVICES?") spending this year as the economy trended back to some semblance of normal,” said Tim Quinlan, a senior economist at Wells Fargo in Charlotte, North Carolina.

But now with the [resurgence of COVID](https://www.financedigest.com/chinas-covid-resurgence-spurs-new-curbs-foxconn-imposes-restrictions.html "China’s COVID resurgence spurs new curbs, Foxconn imposes restrictions"), those gains may be more tepid. High-frequency data on restaurant [visits and travel have plateaued in August as the Delta variant has become more prevalent in the United States.”](https://www.financedigest.com/king-charles-hosts-first-state-visit-for-s-africas-ramaphosa.html "King Charles hosts first state visit for S.Africa’s Ramaphosa")

Still, the foundation for consumer spending growth remains strong. [Job growth](https://www.financedigest.com/u-s-job-growth-powers-ahead-unemployment-rate-at-3-4.html "U.S. job growth powers ahead; unemployment rate at 3.4%") is picking up and employers are raising wages. Households are sitting on at least $2.5 trillion in excess savings accumulated during the pandemic.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, notched double-digit growth in the second quarter, helping to pull the level of [GDP above its peak in the fourth quarter](https://www.financedigest.com/german-gdp-contracted-by-0-4-in-the-fourth-quarter.html "German GDP contracted by 0.4% in the fourth quarter") of 2019.

The economy grew at a 6.5% annualized rate in the second quarter. The Atlanta Federal Reserve is currently estimating GDP growth will increase at a 6.0% pace in the third quarter.

The economy has [strong positive momentum](https://www.financedigest.com/reckon-one-builds-momentum-with-strong-backing-from-accountants-joining-the-cloud-advisor-programme.html "Reckon One builds momentum with strong backing from accountants joining the Cloud Advisor Programme") that should carry into 2022,” said Ben Ayers, a senior economist at Nationwide in Columbus, Ohio. A slower [pace of consumer](https://www.financedigest.com/2021-predictions-less-fraud-shifting-consumer-behaviour-and-accelerating-pace-of-innovation.html "2021 predictions: less fraud, shifting consumer behaviour and accelerating pace of innovation") spending in the months ahead could act to dampen overall growth, but likely only modestly so.

(Reporting by Lucia Mutikani; Editing by Nick Zieminski and Andrea Ricci)


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