Shoppers Keep Spending Despite Tariffs

NEW YORK – July saw a good amount of spending from shoppers, particularly at a national car dealership. It seems they might not be too worried about President Donald Trump’s tariffs.

Retail sales climbed 0.5% last month, with stronger-than-expected spending also noted in June, according to a report from the Commerce Department. They even revised June’s figures upward from a 0.6% increase to 0.9%. So, yeah, the July figures lined up well with what economists anticipated.

Interestingly, this uptick followed two months of spending declines, with a dip of 0.1% in April and a 0.9% drop in May.

If we exclude car sales, which have been a bit all over the place since the tariffs were introduced, retail sales actually increased by 0.3% in July.

Car sales specifically rose by 1.6%. Samuel Toumes, the chief US economist at Pantheon Macroeconomics, mentioned that Americans are pretty much back to their usual spending habits after Trump introduced a 25% tariff on imported cars and parts. This is important, especially after seeing a slump following a surge in March and April.

Looking at various retail sectors, many saw solid growth. Clothing stores registered a 0.7% increase, while online retail experienced an 0.8% boost. Home furniture stores rose by 1.4% as well.

However, electronics stores reported a decline of 0.6%. Plus, dining out took a slight hit, with a 0.4% decrease, as customers seem to be opting for home-cooked meals instead of restaurant dining to save some cash.

When focusing on sales categories that don’t include those volatile sectors, like gas and cars, there’s been a 0.5% increase from last month. This figure plays a role in consumer spending trends, suggesting people are still willing to spend on discretionary items.

It appears that the July spending bump was encouraged by competing online sales during Amazon’s Prime Day and promotions from Target, Walmart, and other retailers.

“Consumers seem to have a little more bounce in their step,” stated Christopher S. Lapkey, an economist at FWDBonds LLC. “It’s going to take time to sift through everything, but tariff-related headlines didn’t keep buyers away in July.”

But, it’s worth noting that Rupkey pointed out it might be interesting to observe how consumers will respond when they see higher prices at mall shops in the upcoming months.

Tariffs seem to be influencing other economic areas too.

Recently, the Labor Bureau indicated that US job growth is noticeably slowing, with Trump’s trade policies creating uncertainty for businesses. Last month, the U.S. added only 73,000 jobs, significantly lower than the expected 115,000.

Another report showed that inflation held steady in July, with rising prices on some imports balanced by lower costs for gas and groceries. Overall, prices increased more modestly compared to a year ago.

In a year-over-year comparison, consumer prices have risen 2.7% in July. This rate remained consistent with the previous month, slightly increasing from a low of 2.3% in April. Excluding food and energy, core prices rose 3.1%, up from 2.9% in June, surpassing the Federal Reserve’s 2% target.

On a month-to-month basis, prices increased by 0.2% in July, down from 0.3% in June, while core prices climbed 0.3%, a bit faster than June’s 0.2% rise.

The latest numbers indicate that while rents and gas prices have moderated, they are helping to mitigate some effects of Trump’s tariffs.

Many companies, meanwhile, might still be absorbing the increased costs of their goods. The consumer price data might still reflect impacts from the 10% tariffs that began in April on imports from countries like China and Canada.

But things could shift. Wholesale inflation surged unexpectedly last month, indicating that the tariffs may be starting to drive up costs that will eventually be felt by consumers.

The Labor Bureau announced a 0.9% rise in producer price indexes—signifying inflation before it hits consumers—marking the largest increase in over three years. Year over year, wholesale prices rose by 3.3%, significantly higher than economists had projected.

Starting next week, major retailers like Walmart and Target are expected to release their second quarter revenue figures. Analysts will closely examine these reports to understand how much of the increased costs businesses are absorbing versus passing on to consumers. They’re also interested in consumer behavior as the autumn and winter holiday seasons approach.

Back in May, Walmart highlighted that the price of bananas imported from Costa Rica rose from 50 cents to 54 cents per pound, indicating that more noticeable price increases for shoppers may hit in June and July. Walmart’s CFO mentioned that a Chinese car seat priced at $350 could see an increase of about $100 for customers.

A growing number of companies like Procter & Gamble, E.L.F. Cosmetics, and Ralph Lauren have recently informed investors that they have begun or are planning to raise prices.

Following this trend, retailers like Warby Parker are being selective, opting to raise prices mainly on premium products to offset higher costs from tariffs. They stated last week that they plan to keep their standard $95 option but have increased prices on specific lenses. They also aim to support older customers who require more costly progressive lenses, which represent a significant portion of the market.

Despite this, only about 23% of Warby Parker’s business currently comprises progressives. The company executives noted that this segment yields the highest profit margins.

“We’ve been able to swiftly implement strategic price increases that have supported our growth,” Warby Parker co-chair Neil Blumenthal shared with analysts last week.