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Consumer spending is actually healthier than it appeared in the July report. July sales dipped 0.6% after Amazon Prime Day was moved to June this year. But while e-commerce sales dropped 2.2%, sales excluding e-commerce, motor vehicles and gasoline rose 0.4%. In-store sales were especially strong, rising 0.4% as well. Clothing sales surged 1.9%, and most other categories of retail sales showed positive growth as well, with the exception of electronics stores, which declined 0.5% after the strong online sales in June.
Motor vehicle sales continued to see-saw, dropping 1.8% in July after a strong 2.4% increase in June. Restaurant sales have been climbing strongly for four months in a row, rising 0.5% in July. Spending on services excluding dining grew a moderate 0.4% in June, after rising a strong 0.7% in May. (June is the latest month for which services spending data other than dining are available. July data will be available on August 26.)
Rising gasoline prices may be a drag on other retail sales. High gasoline prices may eventually cause consumer spending to slow down a bit, simply because savings rates are low and households will need to rebuild their bank accounts by curbing their discretionary spending.
Consumers have so far kept spending solidly amid rising gasoline costs and the accompanying decline in inflation-adjusted personal income by dipping into their savings. The personal savings rate was just 2.7% in June, down from an average of 4.6% last year. Look for the rate to rise towards 3.0% by the end of this year, and further in 2027. That translates to about $400 billion that is not available for future consumer spending, equal to 1.2% of GDP. However, if the stock market continues to do well, then investment gains could supplement savings among affluent households, enabling the low savings rate to continue for a while.
