With auto sales continuing to fall sharply, the Commerce Department released a report on Tuesday showing U.S. retail sales tumbled by much more than expected in the month of July.

The report said retail sales slumped by 1.1 percent in July after climbing by an upwardly revised 0.7 percent in June.

Economists had expected retail sales to dip by 0.3 percent compared to the 0.6 percent increase originally reported for the previous month.

The bigger than expected decrease in retail sales was partly due to a continued nosedive in sales by motor vehicle and parts dealers, which plunged by 3.9 percent in July after tumbling by 2.2 percent in June.

Excluding the steep drop in auto sales, retail sales fell by 0.4 percent in July after jumping by 1.6 percent in June. Ex-auto sales were expected to inch up by 0.1 percent.

The unexpected decline in ex-auto sales reflected significant decreases in sales by non-store retailers, clothing and accessories stores, and sporting goods, hobby, musical instrument, and book stores.

Meanwhile, sharp increases in sales by miscellaneous store retailers, gas stations and food services and drinking places helped limit the downside.

Closely watched core retail sales, which exclude automobiles, gasoline, building materials and food services, slumped by 1.0 percent in July after surging up by 1.4 percent in June.

Andrew Hunter, Senior U.S. Economist at Capital Economics, said the drop in retail sales could be a sign that surging coronavirus cases are convincing consumers to stay at home again, although he noted that is “a little hard to square” with the continued recovery in spending at bars and restaurants and the decrease in online sales.

“Either way, recent data suggest that the spread of the Delta variant has driven a renewed plunge in consumer confidence in early August, suggesting that retail spending will remain under pressure,” Hunter said.

He added, “Moreover, that comes at a time when consumption was already likely to be weighed down by the withdrawal of fiscal support and surging prices eroding purchasing power.”


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