Despite Inflation, Americans Have Kept Spending Money

U.S. retail sales grew more than expected in July, putting to rest fears that consumer demand was drying up three years into the inflation crisis. According to advance estimates from the U.S. Census Bureau, total retail and food services sales - including spending at stores, online and in restaurants - amounted to $709.7 billion in July, up 1.0 percent from the previous month, easily beating economists' predicted 0.3 percent gain. Earlier this month, some companies had signaled weak consumer demand in their earnings reports, contributing to the fear that gripped investors for a couple of days last week. The latest retail sales report doesn't support this gloomy outlook, instead suggesting that consumers continue to spend money despite inflation and a high degree of economic uncertainty.

Considering that consumer prices grew by 0.2 percent in July, retail sales outpaced inflation last month, meaning that consumers actually spend more than they did in June, even adjusted for inflation. On a year-over-year basis, retail sales grew 2.7 percent in July and were practically unchanged when measured in constant 1982-1984 dollars.

As the following chart shows, virtually all of the increase in retail sales over the past three years can be attributed to rising prices, as shoppers have spent more bucks for the same bang. Between July 2021 and July 2024, monthly retail and food services sales (adjusted for seasonal variations, holiday and trading day differences) have increased by 16 percent. Adjusted for CPI inflation, sales have almost flatlined over the past three years, increasing by less than 0.5 percent over the 36-month period. That in itself is remarkable, however, as it means that consumers have kept their buying behavior roughly the same despite surging prices.