U.S. retail sales fell in July for the first time in nine months, an indication of slowing consumer spending that prompted economists to lower their growth forecasts for the third quarter.
The U.S. Commerce Department announced Friday that retail sales fell 0.6% in July, after rising 0.2% in June, while economists polled by Reuters had expected a slight increase of 0.1%. This marks the first decline in sales since last October and the largest drop in 14 months.
Economists attributed part of the decline to the fading impact of the large tax refunds that boosted household spending in the second quarter, along with Amazon moving its Prime Day event to June instead of July, which prompted other retailers to offer similar promotions. Lower gasoline prices also affected sales at gas stations.
Sales at car dealerships and auto parts stores fell by 1.8%, while sales at electronics and home appliance stores declined by 0.5%, and sales at gas stations by 0.9%. Sales at non-traditional retail stores also dropped by 2.2%.
In contrast, clothing store sales rose 1.9%, supported by the back-to-school season, while sales at restaurants and beverage outlets increased 0.5%.
The weak retail sales come after data showed unexpected job losses in July, along with inflation remaining at moderate levels, reinforcing market expectations that the Federal Reserve will keep interest rates unchanged at its scheduled meeting in September.
According to the Chicago Board of Trade (CME) FedWatch tool, the probability of the Federal Reserve keeping interest rates unchanged in the range of 3.50% to 3.75% is around 69.4%, compared to 30.6% for the possibility of raising them.
In a further sign of weakening consumer sentiment, the University of Michigan's consumer confidence index fell to 51 points in August, from 55.2 points in July.
Economists expect consumer spending, which accounts for more than two-thirds of the U.S. economy, to slow to less than 2% year-on-year in the third quarter, compared to 3.2% in the second quarter. Economists at Goldman Sachs also lowered their forecast for third-quarter GDP growth to 2.2%, a decrease of 0.5 percentage points.
