A pair of key reports that shed light on the attitudes of the consumer came out on Friday, with the two reflecting the uncertainty about the economy.
The July Retail Sales report, from the U.S. Census Bureau, was somewhat promising as retail sales rose for the second straight month. Retail sales and food services spending was $726.3 billion in July, up 0.5% from the previous month. This follows a 0.9% increase in June. The retail sales results for July were in line with economists’ projections.
Car sales provided the biggest lift, rising 1.6% from the previous month, while furniture sales increased by 1.4%. Gas stations were up 0.7% while grocery store sales rose 0.5%. Further, sporting goods stores saw a 0.8% sales rise while clothing retailers experienced a 0.7% increase in sales.
Big box general merchandise stores saw a 0.4% increase in sales while department stores, like Macy’s, saw a 0.9% sales increase.
Sales declines were reported by building material and garden supply stores, down 1%, food services and drinking places, down 0.4%, and miscellaneous store retailers, off 1.7%.
“As long as consumer spending holds up and companies are able to retain workers because of that robust spending, the flywheel can continue to spin, pushing corporate profits and stock prices higher,” Chris Zaccarelli, Chief Investment Officer for Northlight Asset Management. “The market is expensive, inflation has been increasing and unemployment has been rising, and yet consumers are still spending, the economy is still growing and the market is still rising.”
Consumer sentiment lags
The somewhat positive retail sales news was tempered by a lackluster report from the University of Michigan Surveys of Consumers for August.
This key gauge of consumer sentiment fell in August to 58.6, down from 60.9 in July and 67.9 in August of 2024.
It was the first decline from the survey in four months, reflecting concerns about inflation, said Surveys of Consumers Director Joanne Hsu.
“Overall, consumers are no longer bracing for the worst-case scenario for the economy feared in April when reciprocal tariffs were announced and then paused. However, consumers continue to expect both inflation and unemployment to deteriorate in the future,” Hsu said.
There are two components of the survey – one reflecting current conditions and one gauging consumer expectations. Most surprising is the drop in sentiment of current conditions. The score dropped to 60.9 from 68.3 the previous month. The expectations index has been consistently low, but it flatlined in August, coming in at 57.2, down from 57.7 in July. But it is well below the 72.1 score it had in August 2024.
“The consumer looks mixed at the start of the third quarter after a wobbly second quarter. Retail sales rose solidly in July, but consumer sentiment deteriorated in early August,” said Bill Adams, chief economist for Comerica Bank. “In short, the U.S. consumer is in okay shape. Sentiment is sour, but actual behavior looks okay. Consumer spending will likely grow moderately in the second half of 2025, then get an incremental boost in 2026 as tax cuts bolster disposable incomes.”
Stocks reflected this uncertainty, as retail stocks were trending slightly lower on Friday. The S&P SPDR Retail ETF (NYSEARCA:XRT) was off 0.2% while the Van Eck Retail ETF (NASDAQ:RTH) was off 0.3%.
Walmart (NYSE:WMT) stock was off 0.5%, while Target (NYSE:TGT) dropped 0.9%.
