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On the radar: Retail spending likely to get a boost in July and August from sales tax holidays

The data for July retail sales won’t be published until Thursday, August 15 at 8:30 ET. However, there are hints that spending in the third quarter, while not weak, will be down from the second quarter, but maybe not significantly.

For July, exceptionally hot weather and the week around the July 4 holiday observance probably drove demand for seasonal merchandise such clothing, outdoor gear, and home appliances like fans and air conditioners. The pick up in home sales in prior months also could have stimulated demand for new furnishings and appliances. Although the first weekend in August hosted the bulk of the back-to-school sales tax holidays in 2019, there were a couple in July that may have helped at the margins for clothing and electronics.

July was also the start of the vacation season. Consumers may have opted to drive. If gasoline prices were on the decline in the month, it is also typical of the time of year and should be accounted for by seasonal adjustment factors. So there could be a mild upside for the dollar value of gasoline sales if consumers were out on the road.

Another factor that may increase the dollar value of gasoline sales in July is gasoline tax increases in 12 states as of July 1. Most are a small two cents or less, but three large states had heftier increases. Illinois was up 19 cents, Ohio 10.5 cents, and California 5.6 cents per gallon. Plus, Virginia increased gas taxes by 7.6 cents per gallon along the Interstate 81 route.

However, sales of motor vehicle, if still running at a solid pace, were off the jump in sales seen in May. May posted a near-term peak of 17.4 million units (SAAR), slipped to 17.1 million in June, and was down to 16.8 million in July. July also reflected that the balance of sales was up for passenger cars which tend to be lower in price from costlier light trucks.

Less obvious, but possibly visible at the margin were some tax increases on tobacco products. Illinois increased taxes by $1 per pack, California increased it rate to 59.27%, and Vermont instituted a 92% tax on e-cigarettes.

The Redbook weekly comparison of year-over-year changes in retail sales suggest that after a spike higher in the first week in July, sales leveled off to a more moderate pace of gains from a year ago. However, the first days in August through Saturday the 3rd included the majority of the previously mentioned back-to-school sales tax holidays and definitely got a boost from shoppers. That doesn’t include additional sales likely to take place on Sunday the 4th and the extra days in Florida’s 5-day event. There’s still a couple of week long sales tax holiday events to come in a couple of states — Connecticut and Maryland.

Altogether, the numbers for retail activity in July probably won’t suffer a material loss of momentum from June, and could see a little of that linger into August.

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