Sales at U.S. retailers have increased, but retail prices have often been lower. The U.S. Department of Commerce announced that seasonally adjusted retail sales in June increased by 0.2% from the previous month. However, the growth rate was slower compared to previous months. Despite this, there are some positive details in the report. Retail sales growth in May was revised upwards, and sales excluding certain factors like gas stations and auto dealerships actually rose by 0.6% in June.
However, sales in the control group, which strips out these factors, were weaker in the second quarter compared to the sharp increase in the first quarter. This weakness in sales can be attributed to high interest rates and dwindling cash reserves, which have eroded people’s spending power.
Interestingly, the impact of inflation on retail prices seems to be weakening. Data from the U.S. Department of Commerce showed that prices in some retail categories, such as department stores and grocery stores, rose less in the second quarter compared to the first quarter. In fact, prices fell across several categories, including furniture stores, building materials stores, online retailers, and gas stations. Overall commodity prices also rose minimally in June, indicating that many commodities are still cutting prices.
This is good news for consumers, as it means they can enjoy lower prices. Economists do not expect a sharp decline in real inflation-adjusted growth in consumer spending for the second quarter. However, for retailers themselves, the effects of slowing inflation and deflation have been mixed. While lower commodity prices have led to lower prices for retailers, they may also be paying more for existing inventory compared to current purchase prices. Additionally, rising labor costs, driven by competition with high labor demand industries like the service sector, may make price cuts even more challenging for retailers.
Investors will have a chance to see the impact of these factors on retailers when they start reporting their fiscal second quarter results next month. It will provide insight into how retailers are navigating this challenging environment and which ones are adapting effectively. Overall, while sales have increased, the combination of lower retail prices and various challenges pose both opportunities and difficulties for U.S. retailers.