Consumers spend inside during heatwaves

August 15, 2023

July retail sales rose 0.7%, scoring the largest increase since earlier this year when a record bump in Social Security payments buoyed spending in January. July’s outcome beat market expectations for a 0.4% rise, while June retail sales were revised a touch higher to +0.3%.

Online sales posted the largest monthly increase in 2023, rising 1.9% in July. Those sales were boosted by promotions from large online retailers. E-commerce sales benefitted from soaring temperatures, which kept shoppers in their cooler indoor environments. The average temperature during July was 76.4°F, 2.8°F above the 20th century average; it was the third warmest in the 128-year record reported the National Oceanic and Atmospheric Administration.  Even traditional department stores, which had lost ground in recent months to big-box discounters, fared well, up 0.9% due to promotions to compete against online channels.

Back-to-school sales started earlier than usual with some kids returning in early August. Clothing and sporting goods sales rose 1% and 1.5%, respectively. 

Sales at restaurants and bars increased 1.4% as consumers moved indoors. Anecdotal reports suggest that concert goers juiced local economies. Taylor Swift and Beyoncé are forces of nature. This is the same time that billion-dollar summer blockbusters filled movie theaters and the restaurants and bars surrounding them.

Core retail sales, used in the calculation for GDP, rose by a solid 1% in July, which was twice what was expected. The surge in individual wages above inflation more than offset the crimp of tightening lending standards and consumer delinquencies. The third quarter is off to a sizzling start from a consumer spending perspective.

Still, sales were not all rosy in July. Big-ticket items, which often require financing, declined. Sales of furniture and electronics dropped 1.8% and 1.3%, respectively.

Housing affordability is a huge issue with the 30-year fixed mortgage rate at 7.50%, the highest in 23 years. Home equity loans have also tightened. Those shifts will suppress spending on items related to home sales, including vehicles. Sales of light vehicles (mostly trucks) and parts fell 0.3%, which was consistent with the flat reading in unit sales during the month.