Checkout lines at most American retailers were noticeably shorter in July as sales stalled following one of the strongest quarters in years, indicating consumer spending will cool in the third quarter. Also, weak producer price drove inventors towards safe-haven buying. Moreover, excluding the automobile segment of the consumer market, sales plunged 0.3 percent in July.
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July’s flat reading on retail sales followed a 0.8 percent increase in June, which was revised up from an earlier estimate of 0.6 percent gains.
Sales at auto and parts dealers rose 1.1% in July.
Therefore, the Federal Open Market Committee (FOMC) is more likely to leave short-term benchmark interest rates unchanged at 0.25-0.5 percent during its next meeting scheduled for September 21. The bid-to-cover ratio, a gauge of demand, was 2.24 at the $15 billion 30-year sale, the lowest in three months. Still, the Atlanta Federal Reserve is now forecasting the economy to grow at a 3.7% annualized rate in the third quarter, though it is unlikely to translate into the overall annual rate. Fed officials have repeatedly expressed concern about low inflation.
U.S. Treasuries were trading higher, while the dollar fell against a basket of currencies.
Basically, these numbers are weaker than expected, and point to less upward inflation pressure than anticipated. Factory-gate prices dropped 0.4 percent in July compared to a 0.5 percent gain the previous month, with cheaper imports to blame. It increased 0.5 percent in June.
Growth is expected to be driven by a rebound in inventory investment, as well as consumer spending. The only other bright spot was non-store retailers, which includes online sales, which increased 1.3% over June. The inventory-to-sales ratio fell to a seven-month low of 1.39 months in June.
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Sales at sporting and hobby stores were down 2.2 percent over the last month, suggesting that July shoppers were not inspired by the upcoming Olympic Games in Rio. That reflected declining receipts at eight of 13 major categories – including service stations, grocery stores and clothing shops – that offset improving demand for autos. Americans also cut back on spending at restaurants and bars and sales at food and beverage stores recorded their largest drop since May 2011.
