Making sense of the market mayhem: falling US retail sales

The stock market couldn’t catch a break this week. On top of news the Delta COVID variant sent markets tumbling, retail sales data released on Tuesday gave investors another reason for concern.

What’s the big deal? Consumers make up 70% of the US economy and with spending slowing down — US retail sales falling by 1.1% in July, more than forecasted — investors are questioning whether they should be concerned.

Where are sales slowing down? Just about everywhere — 8 of the 13 categories tracked by the report showed a decline in sales:

• A noticeable drop of 3.1% in e-commerce and 3.9% drop in auto.
• Credit card spending slowed at the end of July, according to data from Bank of America.

The bright spot: Restaurant spending increased but at the slowest pace in 5 months. According to the FT, the drop is partly due to a shift in spending from retail to hospitality services.

Pointing fingers: What’s to blame for the slowdown?

• Delta COVID variant — slowing down travel plans and leading to consumers pulling back on purchases.
• Higher prices caused by inflation and lack of inventory (i.e. cars) due to supply chain issues.

Yes, wages are rising but not as fast as prices — which may be impacting consumer’s willingness to spend.

But the slowdown isn’t only in the US. China also released worse-than-expected retail sales data that showed a sharp drop in retail sales and in the manufacturing sector.

Looking forward: There’s another reason for the slowdown — the economy is normalizing to its pre-COVID growth levels.

According to views from FT: The data shouldn’t make investors freak out but instead, prepare for a scenario where the economy might not get its multi-year period of pent-up growth.