Consumers expected to spend slightly more in July, but Prime Day may have boosted sales

Consumers are expected to spend slightly more in July, but they may have increased the amount they spend online significantly.

US retail sales will be reported on Wednesday at 8:30 a.m. ET. They are expected to increase 0.1% in July, down from a 1% monthly gain in June, according to Dow Jones. Excluding cars, spending is expected to be flat.

That data will provide an important piece of the economic picture as economists – and investors – try to get a clearer picture after a mixed set of statistics. For example, employment data has been strong, even as claims for unemployment benefits grow. Some weak manufacturing data, while Tuesday’s report on industrial production shows a surprising robustness increase production.

Consumers are responsible for about two-thirds of the US economy, so any insight into spending matters. Retail sales data is also affected by rising inflation, and sales figures must reflect the impact of higher prices.

“It’s going to be important because we’re already getting these cross-flows when it comes to economic data,” said Michelle Meyer, chief economist, US at Mastercard. She said negative gross domestic product in both the first and second quarters had raised recession fears, but strong jobs data contradicted that.

Meyer said the Mastercard SpendPulse data she tracks was strong in July. “Spending is very strong,” she said. “Our retail spending, excluding autos, grew 11.2% year-over-year in July.”

Mastercard Spend Measure data in store and online spending for all forms of payment.

Tom Simons, economist at Jefferies, said he was expecting a much stronger 0.8% consensus gain than the 0.8% consensus gain in the July retail sales report, a big chunk of it. This is due to the strength of wage growth and the recovery of the labor market. Last month, the economy added 528,000 jobseasily beat expectations.

Simons records retail sales down 1.1% in July last year, so the annual number can be large. “If you add in our numbers, you get a pretty strong acceleration of almost 10 per cent over the same period last year,” he said. He noted that sales were up 8.4% year-over-year in June.

Meyer said some categories in the SpendPulse data for July showed a clear increase due to inflation while others did not. For example, grocery sales increased 16.8% due to increased food prices.

Gasoline prices are much higher than last year, but prices at the pump have all dropped in July from mid-June as high as $5.01 per gallon unleaded, according to AAA. In the consumer price index, the gasoline index fell 7.7% in July, offsetting gains in food and housing. The drop in gas prices helped bring inflation down to 8.5% year-on-year in July, from 9.1% in June.

“Given that gas stations account for 10.3% of this chain and no inflation adjustment has been applied, the apparent drop in fuel costs in the CPI suggests that tomorrow’s print will be on a downward bias just for the sake of this, so consensus +0.1%,” said Ian Lyngen, head of US rates strategy at BMO Capital Markets. “The more relevant question becomes the extent to which less complex gas prices free up consumption for other goods and services.”

According to SpendPulse, spending on fuel and convenience grew 32.3% year-on-year in July, but the rate of increase was slower than June’s 42.1% increase.