Consumer spending had driven the tepid economy during the first half of the year. However, a potential stumbling block for the economy cropped up with retail sales coming in flat in July. Cost reduction in the service sectors and energy products also indicated that the inflation rate will be weak, making Fed’s 2% target all the more difficult to achieve.
Given the disappointing retail sales figures last month and discouraging inflation trends for producer prices, chances of a rate hike seem to be receding. A low interest rate environment is a blessing in disguise for REIT mutual funds; hence, investing in such funds will be a judicious decision.
U.S. Retail Sales Stall
Sales at retailers and restaurants remained unchanged at a seasonally adjusted $457.73 billion last month from the prior month, according to the Commerce Department. Even though sales remained stubbornly flat, it did tick up a measly 2.3% from a year earlier.
But, if we exclude sales of motor vehicles and parts, the largest category at 21% of total retail sales, growth slumped 0.3% in July, its weakest reading since January. Sales at auto and parts dealers rose 1.1% in July to $93.2 billion from the prior month. This data makes us believe that Americans flocked to auto dealers shunning other merchants; however, it isn’t clear how long auto sales will boost consumer spending levels. Unit sales at the top three auto makers – General Motors Company (GM - Analyst Report) , Ford Motor Co. (F - Analyst Report) and Toyota Motor Corporation (TM - Analyst Report) – dropped in July as pent-up demand slackened.
Except for non-store retailers, sales numbers were lackadaisical, while it was a nightmare for the already struggling brick-and-mortar retailers. Departmental store sales fell 0.5% as consumers shifted their preferences to online shopping. But, it was not only brick-and-mortar paying the price; consumers also cut back spending on sporting goods and hobby outlets, food and beverage stores, building-material suppliers, electronics outlets and several other categories in July.In fact, sales at gasoline stations declined 2.7% mostly due to lower gas prices. Cooling consumer spending suggest that the Fed won’t hike rates anytime soon (read: 4 Non-Store Retail Picks to Smartly Play Stalled July Sales).
