Economic Report: U.S. retail sales slump 1.1% due to shortage of cars and Amazon Prime hangover

United States

The numbers: Americans cut spending at retail stores in July for the second time in three months, largely reflecting an Amazon Prime hangover and a limited selection of new cars.

The fast-spreading delta strain of the coronavirus appeared to partly dampen spending last month. The amount of money spent at bars and restaurants increased at the slowest pace in five months.

Retail sales sank 1.1% last month, the government said Tuesday.Economists polled by The Wall Street Journal forecast a 0.3% decline.

Retail sales are still up 16% in the past year and exceed pre-pandemic levels, but the increase in receipts has slowed over the past several months.

What’s more, some of the sales gain reflects rising inflation or higher prices.

Read: The cost of living posts biggest surge since 2008 as inflation spreads

Big picture: Retail sales were bound to slow after government stimulus faded away. Americans also took advantage of fewer covid restrictions to dine out, go to a ball game or take long delayed trips away from home. The money spent on those services didn’t end up in the cash registers of retailers.

The good news is, consumer spending is still quite strong. Retail sales only account for one-third of overall consumer spending. The rest is spent on services.

“The bigger-than-expected fall in retail sales is almost certainly due to the continued and accelerating shift from goods spending to services spending, as the services economy reopens,” said corporate economist Robert Frick of Navy Federal Credit Union.

What’s less certain is whether delta forces Americans to cut back on services just like they did during most of the pandemic. Early evidence suggests just a minuscule pullback so far, but if coronavirus cases keep rising, the damage could spread.

Key details: The chief source of lower retail sales last was a decline in purchases of new cars and trucks. Sales at auto dealers tumbled 3.9% to mark the third decline in a row.

Automakers can’t produce enough new vehicles to sate the appetite of buyers because of a global shortage of computer chips. Semiconductors are now a critical component in modern vehicles.

Auto purchases account for about one-fifth of all retail sales. Excluding autos, retail sales fell a smaller 0.4%.

Still, sales declined in most major categories. Americans spent less on building materials, do-it-yourself projects, furniture, clothing, groceries and hobby items.

Sales also fell sharply at Internet retailers, but the decline likely reflected consumers taking a breather after Amazon AMZN, +0.15% Prime Day in June. Sales usually slow the following month.

The only retailers to post big gains were gas stations and restaurants.

Consumers are driving more and also paying much higher prices for gasoline compared to a year ago.

Restaurant sales rose 1.7% in July, but it was the smallest gain in five months.

Millions of people flocked to restaurants after they were vaccinated and coronavirus cases fell in the spring and early summer, but the delta-driven resurgence might be forcing customers to think twice.

Some governments or restaurants are also requiring proof of vaccination, a rule that could turn some customers off.

Market reaction: The Dow Jones Industrial Average DJIA, +0.31% and S&P 500 SPX, +0.26% were set to open lower in Tuesday trades.