Retail sales rise in July as shoppers rush to spend ahead of tariffs

Fast Company

a day ago

Shoppers spent at a healthy pace in July, particularly at the nation's auto dealerships, even as President Donald Trump 's tariffs start to take a toll on jobs and lead to some price increases.
But the figures also underscore anxiety among Americans: all the uncertainty around the expansive duties appears to be pushing them to step up their purchases of furniture and other items ahead of the expected price increases, analysts said.
Retail sales rose a solid 0.5% last month from the previous month, and June spending was stronger than expected, according to the Commerce Department's report released Friday. June's retail sales were revised upward to 0.9% from the original 0.6% increase, the agency said. The pace in July matched economists' estimates.
The increases followed two consecutive months of spending declines in April and May.
Excluding auto sales, which have been volatile since Trump imposed tariffs on many foreign-made cares, retail sales rose 0.3% in July.
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 various stores. Business at clothing stores and online retailers saw increases. Business at home furnishings and furniture stores had strong sales gains.
However, at electronics stores, sales were down. And business at restaurants, the lone services component within the Census Bureau report and a barometer of discretionary spending, also fell, as shoppers eat at home to save money.
A category of sales that excludes volatile sectors such as gas, cars, and restaurants rose last month by 0.5% from the previous month. The figure feeds into the Bureau of Economic Analysis's consumption estimate and is sign that consumers are still spending on some discretionary items.
Tuan Nguyen, an economist at RSM US, noted the difficulty of attributing the entire July gain to resilient American shoppers given so much uncertainty surrounding the economy and tariffs. A sizable portion of the gain likely came from rising prices of imported goods under the impact of tariffs, he said.
Nguyen also noted he can't dismiss the possibility that consumers once again pulled forward their spending ahead of the August tariff deadline, taking advantage of Amazon Prime Day sales as well as competing sales from the likes of Walmart and Target.
In fact, Nguyen noted the sharp rise in furniture sales, for example, appeared to indicate shoppers were trying to get ahead of the duties.
'There is nothing fundamentally wrong with American households that would suggest a spending recession given that shoppers are in a strong enough financial position to accelerate purchases,' he wrote. 'With so much noise in the data, the rest of the year promises to be a wild and bumpy ride.'
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, 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. 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.
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 study the reports to get insight into the state of consumer behavior. But they will also monitor how much stores are passing on the tariffs costs to shoppers.
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.
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 are trying to be selective and focusing on raising prices on just their premium products as a way to offset the higher costs from tariffs.
Warby Parker, which has been shifting their sourcing away from China, 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, 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.