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Illustration: Shoshana Gordon/Axios

Retail sales fell by a lot more than experts expected in July. However, the shopping trends underlying the data don’t paint a picture of nervous consumers pulling back amid renewed COVID concerns.

Why it matters: The recent spike in COVID cases amid the spread of the Delta variant has taken a toll on consumer sentiment. Should that drop in sentiment translate into a significant downturn in actual spending, the U.S. economic recovery could be thrown off track.

By the numbers: Retail sales in July declined by 1.1% from June levels, according to a Tuesday Census report. That was much worse than the 0.3% decline expected.

  • Leading the decline was a 3.9% drop in motor vehicle and parts dealers sales. The auto industry, however, is working through well-known supply chain issues.
  • Yet excluding autos, retail sales still unexpectedly fell by 0.4%, which was also worse than the 0.2% gain expected by economists.

Between the lines: Online retailer sales fell by 3.1% during the month. The category accounts for about 14% of total retail sales.

  • Multiple economists Axios follows, however, noted this reflected Amazon’s Prime Day, which occurred in June. The event, which even had Amazon’s online competitors offering aggressive deals, had the effect of pulling demand forward, depressing sales in the subsequent month.
  • "The miss was largely in online retailing," Renaissance Macro economist Neil Dutta said of July’s retail sales report.

Zoom out: If there’s one bigger picture theme that explains the report, it’s that consumers are spending more on services and less on goods, reversing behavior adopted during the lockdowns.

  • "The largest declines were in Covid-advantaged categories," Morgan Stanley chief U.S. economist Ellen Zentner said, pointing to sporting goods, books, building materials and furniture.
  • Spending at restaurants and bars jumped 1.7%, which conflicts with the idea that the Delta variant wave has caused consumers to spend less.

Yes, but: "Data on mobility is starting to show a pull back, especially in hot spots in the South," GrantThornton chief economist Diane Swonk said.

The bottom line: July economic data doesn’t conclusively signal that the spike in COVID cases is leading to a retrenchment in spending. However, it also doesn’t suggest the economy is in the clear.

  • "Fear acts as its own deterrent on congregating," Swonk said. "Spread of the Delta variant and vaccine hesitancy have begun to collide. We are in for a rockier second half of the year."

Go deeper

Philadelphia's housing market remains highly competitive

Illustration: Sarah Grillo/Axios

Philadelphia's housing market cooled slightly in this fiscal year's second quarter, but it remains ultra-competitive thanks to low supply fueling aggressive price increases.

Why it matters: Housing price growth continues to exceed household income growth, which Drexel University economist Kevin Gillen writes could indicate that "more homes are becoming less affordable (or even unaffordable) to an increasing number of Philadelphians."

Obama says Powell exemplified what America "can and should be"

Then-President Obama speaks alongside former Secretary of State Colin Powell (left) during a meeting in the Oval Office in 2010. Photo: Saul Loeb/AFP via Getty Images

Former President Obama called Colin Powell an "exemplary soldier and an exemplary patriot" in a statement honoring the former general following his death from COVID complications on Monday.

Why it matters: Powell, the first Black U.S. secretary of state, was known as a Republican but played a critical role in helping Obama get elected in 2008.

Justice Department asks Supreme Court to block Texas abortion ban

Abortion rights activists rally at the Texas State Capitol on Sept. 11 in Austin, Texas. Photo: Jordan Vonderhaar/Getty Images

The Justice Department on Monday asked the Supreme Court to temporarily block Texas' near-total ban on abortions while federal courts consider its constitutionality.

The big picture: The court last month allowed the ban to take effect, rejecting an emergency application by abortion-rights groups. The law bars the procedure after cardiac activity is detected, as early as six weeks into pregnancy.