Shoppers spent at a healthy pace in July, particularly at the nation’s auto dealerships, as they shrug off President Donald Trump’s tariffs, which are starting to take a toll on jobs and lead to some price increases.
Retail sales rose 0.5% last month, a slowdown from a revised 0.9% in June, which was revised upward, according to the Commerce Department’s report released Friday. The pace in July matched economists’ estimates.
The increases followed two consecutive months of spending declines — a 0.1% pullback in April and a 0.9% slowdown in May.
Excluding auto sales, which have been volatile since Trump imposed tariffs on many foreign-made cares, retail sales rose 0.3%.
Auto sales rose 1.6%. They appear to have returned roughly to normalized spending after a surge in March and April as Americans attempted to get ahead of Trump’s 25% duty on imported cars and parts and then a slump after that, according to Samuel Tombs, chief U.S. Economist at Pantheon Macroeconomics.
The data showed solid spending across many retail sectors. Business at clothing stores was up 0.7% while online retailers saw a 0.8% increase. Business at home furnishings and furniture stores rose 1.4%.
However, at electronics stores, sales were down 0.6%. And business at restaurants, the lone services component within the Census Bureau report and a barometer of discretionary spending, fell 0.4%, however as shoppers are focusing on eating at home to save money.
Still spending appears to be holding up even as Trump’s tariff are resulting in a slowdown in hiring and rising prices for shoppers.
Earlier this month, the Labor Department reported that U.S. hiring is slowing sharply as Trump’s trade policies paralyze businesses and raise concerns about the outlook for the world’s largest economy. U.S. employers added just 73,000 jobs last month, the Labor Department reported Aug 9, well short of the 115,000 expected.
Another government report, issued Tuesday, on U.S. inflation showed that inflation was unchanged in July as rising prices for some imported goods were offset by declining gas and grocery prices, leaving overall prices modestly higher than a year ago.
Consumer prices rose 2.7% in July from a year earlier, the same as the previous month and up from a post-pandemic low of 2.3% in April. Excluding the volatile food and energy categories, core prices rose 3.1%, up from 2.9% in June. Both figures are above the Federal Reserve’s 2% target.
On a monthly basis, prices rose 0.2% in July, down from 0.3% the previous month, while core prices ticked up 0.3%, a bit faster than the 0.2% in June.
The new numbers suggest that slowing rent increases and cheaper gas are offsetting some impacts of Trump’s sweeping tariffs.
Many businesses are also likely still absorbing much of the cost of the duties. The consumer price figures likely reflect some impact from the 10% universal tariff Trump imposed in April, as well as higher duties on countries such as China and Canada.
But that may change. U.S. wholesale inflation soared unexpectedly last month, signaling that Trump’s taxes are pushing costs up and that higher prices for consumers may be on the way.
The Labor Department reported Thursday that its producer price index — which measures inflation before it hits consumers— rose 0.9% last month from June, biggest jump in more than three years. Compared with a year earlier, wholesale prices rose 3.3%. The figures were much higher than economists had expected.
The report comes as major retailers like Walmart and Target are slated to report their fiscal second-quarter earnings reports starting next week. Analysts will stud the reports to see how much retailers are absorbing the costs and how much they’re passing on to shoppers. They’ll also want to get insight into the state of consumer behavior heading into the critical fall and winter holiday seasons.
In May, Walmart, the nation’s largest retailer, warned t hat it had increased prices on bananas imported from Costa Rica from 50 cents per pound to 54 cents, but it noted that a large sting for shoppers wouldn’t start to appear until June and July. The retailer’s chief financial officer, John David Rainey, told The Associated Press that he thought car seats made in China that were selling for $350 at Walmart would likely cost customers another $100.
But a growing list of companies including Procter & Gamble, e.lf. Cosmetics, Black & Decker and Ralph Lauren told investors in recent weeks that they plan to or have already raised prices.
Some, like eyewear retailer Warby Parker, are trying to be selective and are trying to focus on raising prices on just their premium products as a way to offset the higher costs from tariffs.
Warby Parker has been shifting production away from China, where it plans to bring the percentage of all cost of goods sold by year-end under 15%. But it’s also having to deal with higher tariffs costs in other countries.
Warby Parker told analysts last Thursday that it plans to keep its $95 option. But it’s increasing prices on select lens types. It also wants to cater more to older shoppers who need more expensive progressive lens. Warby Parker said that progressives, trifocals and bifocals make up roughly 40% of all prescription units sold industrywide. But just 23% of Warby Parker’s business now is made up of progressives. Company executives said progressives are its highest priced offering and offer the highest profit margins.
“We were able to quickly roll out select strategic price increases that have benefited our growth,” Neil Blumenthal, co-chairman and co-founder and co-CEO of Warby Parker, told analysts last week.
