US retail sales were unchanged in July as declining fuel prices weighed on receipts at service stations, but consumer spending appeared to holding up, which could further assuage fears that the economy was already in recession.
The Commerce Department said that retail sales' flat reading last month followed a downwardly revised 0.8% increase in June. Retail sales in June were previously reported to have advanced 1.0%.
Economists polled by Reuters had forecast that sales would gain 0.1%, with estimates ranging from as low as a 0.3% decline to as high as a 0.9% increase. Retail sales are mostly goods and are not adjusted for inflation.
Monthly consumer prices were unchanged in July as gasoline prices retreated from record highs, lowering the annual rate of increase in inflation to 8.5% from 9.1% in June.
The national average gas price dropped to about $4.27 per gallon in the last week of July after hitting an all-time high just above $5.00 in mid-June, according to data from motorist advocacy group AAA. Prices at the pump were averaging $3.943 per gallon on Wednesday.
Excluding automobiles, gas, building materials and food services, retail sales increased 0.8% last month after rising 0.7% in June.
These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. They were previously reported to have risen 0.8% in June.
Consumer spending grew at its slowest pace in two years in the second quarter. The modest rise was offset by weakness in business and government spending as well as residential investment, resulting in the second straight quarter of GDP contraction. But with the labor market maintaining a brisk pace of job growth in July and industrial production hitting a record high, the economy is probably not in recession.
Still, the Federal Reserve's aggressive interest rate increases to dampen demand and curb inflation have left the economy vulnerable to a downturn. The US central bank has hiked its policy rate by 225 basis points since March.
Core retail sales are holding up even as spending is shifting back to services like restaurants, recreation and air travel as Americans learn to live with the Covid-19 pandemic.
High inflation has made consumers more price sensitive, leaving retailers with excess inventory and forcing them to offer price discounts. Retail bellwether Walmart on Tuesday said that it had cleared most of its summer seasonal inventory but still had work to do in reducing its stock of electronics, home goods and apparel.