U.S. shoppers sharply boosted spending at retailers in July despite higher prices

WASHINGTON —  Americans stepped up their spending at retailers last month by the most in a year and a half, easing concerns that the economy might be weakening under the pressure of higher prices and elevated interest rates.

The Commerce Department reported Thursday that retail sales jumped 1% from June to July, the biggest such increase since January 2023, after having declined slightly the previous month. Auto dealers, electronics and appliance stores and grocery stores all reported strong sales gains.

The July retail sales data provided reassurance that the U.S. economy, while slowing under the pressure of high interest rates, remains resilient. It showed that U.S. consumers, the primary driver of economic growth, are still willing to spend.

Adjusted for inflation, sales rose about 0.8% last month. And excluding gas station sales, which don’t reflect Americans’ appetite for spending, retail purchases also rose 1%.

Since the start of the pandemic, consumers have been pummeled by high prices and elevated interest rates. But at the same time, average wages have also been rising, providing many households with the means to keep spending.

Inflation-adjusted wages have increased slightly from a year ago. Upper-income households have also seen their wealth increase, with stock prices and home values having jumped in the last three years. Increases in wealth can encourage more spending.

Auto sales jumped 3.6% last month, the largest increase since January 2023, a sign that rising inventories of cars on dealer lots are boosting purchases.

Sales surged 1.6% at electronics and appliance stores. They rose 0.9% at hardware stores and garden centers. Restaurant sales were up 0.3%, a sign that Americans are still willing to spend on discretionary items, such as eating out.

Financial markets had plunged earlier this month on fears surrounding the economy after the government reported that hiring was much weaker than expected in July and that the unemployment rate rose for a fourth straight month.

Yet since then, economic reports have shown that layoffs are still low and that activity and hiring in service industries remain solid. Americans are also still splurging on services, such as travel, entertainment and healthcare, which are not included in Thursday’s retail sales report.

Still, some economists worry that much of Americans’ spending now is being fueled by the increased use of credit cards. And the proportion of Americans who are falling behind on their credit card payments, while still relatively low, has been rising.

But cooling inflation may give households a needed boost. Consumer prices rose just 2.9% in July from a year earlier, the government said Wednesday. That was the smallest year-over-year inflation figure since March 2021. And core inflation, which excludes volatile food and energy prices, slipped for the fourth straight month.

While Americans are still willing to spend, they are increasingly searching out bargains. On Thursday, Walmart, the nation’s largest retailer, reported strong sales in the three months that ended July 31.

More Americans appear to be shopping at lower-priced retailers such as Walmart. The company also boosted its sales outlook for this year and said it hasn’t seen any signs of weakness from the consumer.

Other companies are also starting to offer lower prices to entice consumers, a trend that is helping slow inflation. McDonald’s said its global same-store sales fell for the first time in nearly four years in the second quarter. The company introduced a $5 meal deal at U.S. restaurants in June; most franchisees plan to extend that deal through August.

Arie Kotler, chief executive of Arko Corp., a convenience chain based in Richmond, Va., said he’s noticed that shoppers have cut back their spending on discretionary items such as salty snacks and candy bars since May. He said he thinks people are struggling with high interest rates on credit cards, with many of them maxed out.

Rugaber writes for the Associated Press.