While many recent months for U.S. retail sales have met or exceeded expectations, June fell short, even with Amazon’s massive Prime Day sale moving up from July. This drop is likely being driven by cheaper gas prices, but some economists are worried nonetheless and fear that U.S. spending peaked in the first half of the year.

The slightly softer results for retail in June shouldn’t instantly set off any alarm bells, but could be a sign of things to come. If retail growth continues to inch ahead slowly, or even starts going the other way, ecommerce sellers need to ensure they’re prepared for how to stay afloat during these difficult times.

U.S. Retail Sales Only Grow 0.2% in June

While economists foresaw a slow retail month in June, with a 0.3% increase expected, the actual results were softer than expected, as U.S. retail sales only grew by 0.2%. It’s certainly better than going down, but when you compare it to the 6.7% growth from May to June last year, it certainly seems the retail space may be coming back to earth.

As far as individual categories, pharmacy spending dropped 0.8%, grocery spending declined by 0.2%, sales at apparel retailers also declined, and furniture and home furnishing sales were flat.

Also, despite June being the month when the World Cup began, spending at bars and restaurants only climbed 0.1% month over month in June. This is a huge disappointment to both bar/restaurant owners and economists alike, as both likely expected more growth during such a major sporting event.

But June wasn’t all bad for retail, as auto sales and parts saw a 1.9% increase, and sales at nonstore retailers, such as ecommerce merchants, also increased by 1.9%. However, this rise is likely due to Amazon Prime Day being moved up to June this year, and the fact that it set sales records.

Softer Sales Largely Driven By Lower Gas Prices

While all of those figures certainly played a part, the biggest driver of this muted retail growth was likely the much lower gas spending that June saw. In fact, lower gas prices in June led to 5.3% less spending at gas stations compared to the previous month. That’s a major difference compared to the 2.6% monthly increase that occurred in May.

The crisis in the Middle East is leading to volatile gas prices and several other global issues, so rising and falling prices at the pump aren’t necessarily surprising. Also, if you look at the control-group sale, which doesn’t include sales of autos, gasoline, building materials, and restaurant meals, they grew by 0.5%, which is stronger than what economists predicted.

Not Robust, But Not a Red Flag

In response to the so-so retail performance in June, Bret Kenwell, a U.S. investment analyst at eToro, said that “Consumer spending is a critical engine of the US economy, so investors want to see households continue opening their wallets. June’s report was not particularly robust, but it was not a red flag either,”.

This shows that retail is at a crossroads, with figures that aren’t as impressive as we’re used to seeing recently, but also not a major cause for concern yet. However, some economists fear that spending may have peaked in the first half of the year, and that now many consumers are simply left to struggle with the higher prices across the board.

For example, Gary Schlossberg, a global strategist at Wells Fargo Investment Institute, said that “We still expect some moderation in economic growth in the coming months as consumer spending likely will be challenged by renewed firming in oil prices tied to the ongoing Iran war as well as a fading tailwind from this year’s big tax refunds,”.

It remains to be seen whether this is a momentary blip or if future months also see retail stagnate. The return of higher gas prices may cause the retail numbers to climb back up, but these higher gas prices, in reality, may hurt consumer spending more than help it.

Spending in general could also bounce back, but it also could begin to trend the other way, and actually see retail sales drop, which may set off alarm bells for American merchants in all industries.

Our Take

Merchants Need to Prepare for Tighter Spending

While June wasn’t a complete red flag or a time to hit the panic button, merchants should still be cautious any time that retail sales seem like they may be wavering.

Many merchants can succeed when the public is buying like crazy, but the true mark of a business that can stand the test of time is being able to find success during the times when people are closing their wallets.

As a result, merchants need to have plans and strategies in place to continue to succeed when people are spending less. This may include offering flexible pricing, implementing subscription models, highlighting the true value of your product, and finding ways to lower your costs so you can offer more attractive prices.