July was a robust month for retail sales with consumers showing very few signs of pulling back on their spending.
Overall sales grew by 4.3 per cent, which is well above the average for the year. Some of this was driven by inflation, with underlying volume growth coming in at a respectable, but shallower, 1.4 per cent compared to the prior year.
Core retail sales – which exclude gasoline, autos, and foodservice – expanded by 4.7 per cent or by 2 per cent in volume terms. Prime Day and the associated retail events around it were helpful to the month and can be seen in the elevated level of non-store growth, where sales rose by 8.3 per cent. This partly shows the consumer receptiveness to deals and offers, especially in an environment where there is nervousness around future price increases.
This sentiment, along with some of the good bargains, drove pull-forward spending, which, by our calculations, amounted to around $6.2 billion this month. A lot of this was back-to-school spending that had been brought forward from August, along with some investment in furnishings and even the early buying of holiday items.
The month was also helped by the Fourth of July holiday, around which spending spiked as consumers splurged on food, home products, and apparel. The ebullient levels of spending around the holiday continue a trend of consumers committing to special occasions and events because they want to enjoy themselves.
Of course, this commitment to spending does not mean that the consumer is immune to the wider challenges in the economy. From our data, we still see signs of constraint, including suppressed volumes, hunting around more for bargains, and buying more from value chains. All these things are efforts to keep household budgets balanced while not completely sacrificing buying activity.
The other factor to consider is that the consumer budget encompasses more than just core retail; it includes various other expenditures. We see evidence of people pulling back in areas like travel because of economic pressures. This helps them keep retail spending inflated.
None of this should be interpreted too negatively. However, it underscores that consumers are being forced to make choices. It also points to the limited capacity households have to absorb future shocks – whether from sharp inflation or a significant economic downturn – without cutting back on retail spending. This is a warning signal that has loomed over the sector for some time and is likely to persist into the second half of the year.
The pressure on consumers is also one reason many retailers are choosing not to pass higher tariff costs through in full. Many believe that doing so would harm their competitive position and sales volumes, so they are instead absorbing some of the impact on margins, with the intention of eventually offsetting it through cost reductions elsewhere. While some price increases are almost certain, the overall tariff response is shaping up to be far more mixed than initially anticipated.
On a sector basis, apparel stores saw a 7.4 per cent leap in sales – with extensive discounting in the sector persuading consumers to open their wallets. Furniture and home stores posted a 5.8 per cent uplift, again helped by a lot of promotions which nudged some households into pulling forward spend to take advantage of the sharp prices. However, electronics and home improvement stores remain out of favor, both posting a decline in sales. Sales at food and beverage stores increased by 3.3 per cent, helped by inflation and volume uplifts around the Fourth of July holiday.
Overall, the results represent a solid start to the second half of the year. The challenge is to keep this momentum going.
