Consumers Continue to Spend

• Retail sales increased 1.0% in July from June. Details were solid, with a 0.4% increase in core sales. 

• Sales fell slightly in June after revisions, but the details were better.

• The cyberattack led to a big drop in auto sales in June, but there was a bounce back in July. 

• Consumer fundamentals are good in mid-2024 but softening somewhat. PNC expects more modest growth in retail sales through the rest of this year and into 2025.

Retail sales increased a strong 1.0% from June to July, according to the advance estimate from the Census Bureau. June sales were revised lower, from no change to a 0.2% decline. Sales growth in May was revised down slightly to a 0.2% increase, from a 0.3% increase. 

Sales excluding motor vehicles and parts were up 0.4% in July, with sales excluding autos and gasoline (core sales) also up 0.4%. Control retail sales-sales excluding autos, gasoline, building materials, and food service, and which go into nominal consumer spending in GDP-rose 0.4% in July, after a 0.9% increase in June. 

On a year-ago basis total retail sales were up 2.7% in July, an acceleration from 2.0% growth in June. Core retail sales were up 3.4% in July, compared to 3.6% growth in June. Gasoline sales were down about 2% year-over-year in both June and July because of lower prices, pulling down the headline number. 

Consumer spending continues to increase at a solid pace in mid-2024. Sales rose in July at a decent pace and the details were good as well, with a 0.4% increase in core sales and a 0.8% increase in control sales. Headline sales have increased in four of the past six months, and core retail sales have increased in five of the past six months. Total sales were down slightly in June, but that was due to a drop in auto sales, because of the CDK Global cyberattack against auto dealers, and lower gasoline prices. 

The fundamentals for consumer spending are good in the summer of 2024, but are gradually softening. The labor market is strong, but not as strong as it was last year, with softer job and wage gains and a rising unemployment rate. Slowing inflation means that real (inflation-adjusted) wages are increasing. Household wealth is at a record high with rising home values and stock prices. And interest rates are set to move lower as the Federal Open Market Committee is signaling a cut in the federal funds rate at their next meeting, on September 18, with further rate cuts to come. But there are some concerns, including rising delinquency rates for consumer credit and a low saving rate. Low- and middle-income households are facing more stress than upper-income ones, as they have not benefited as much from rising home and stock prices. 

PNC expects a slowing in growth in consumer spending through the rest of 2024 and into 2025 as a further softening in the labor market and a need to increase savings weighs on household purchases. But spending is not expected to decline. 

Spending at auto and parts dealers rose 3.6% in July from June as auto sales bounced back after falling 3.4% in June with the cyberattack, to slightly above their May level. Sales at gasoline stations were up 0.1% over the month. Sales at restaurants and bars increased 0.3% in July, have been up in five of the past six months, and increased 3.4% year-over-year in July. This spending is more discretionary, and the ongoing strength is a positive signal for consumer purchases. Spending increased in most categories in July from June, with notable gains for electronics and appliances (up 1.6%), grocery stores (up 1.0%), building materials (up 0.9%), health and personal care (up 0.8%), general merchandise (up 0.5%), and furniture and home furnishings (up 0.5%). There were declines for clothing stores (down 0.1%), special stores (down 0.7%), and miscellaneous stores (down 2.5). Non-store retail sales (online and catalog) increased 0.2% in July.

The PNC Financial Services Group, Inc. is one of the largest diversified financial services institutions in the United States, organized around its customers and communities for strong relationships and local delivery of retail and business banking including a full range of lending products; specialized services for corporations and government entities, including corporate banking, real estate finance and asset-based lending; wealth management and asset management. For information about PNC, visit www.pnc.com.