As we head into the final stretch of 2023, retail sales have taken a disappointing turn in July. According to UBS, sales at retail and food services stores fell by -0.6% over the month, which is significantly lower than the 0.1% increase expected by both us and consensus. Moreover, prior months were revised down by a cumulative -0.1%, painting a soggier contour at the end of Q2.

To make matters worse, sales at gasoline stations and motor vehicles and parts stores dragged on the headline number, while excluding these categories, sales still fell by -0.2%. This is significantly lower than the 0.3% expected by us and consensus.

The decline in retail sales can be attributed to fading support from larger tax refunds compliments of the OBBBA, which could be part of the disappointment today. As we noted in our preview, this was a key risk to the July data, and it seems that this factor has had an impact on consumer spending.

The decline in retail sales at the end of Q2 is concerning, as it may indicate a slowdown in economic growth. However, it’s worth noting that the overall trend in retail sales remains positive, with year-over-year growth still standing at 3.8%. Nonetheless, this setback could have implications for the broader economy, and it will be interesting to see how policymakers respond to this development.