Growth slowing even before potential Delta drag

The 1.1% m/m fall in retail sales last month illustrates the worsening drag from the sharp slowdown in real income growth, as earlier fiscal support fades and surging prices erode purchasing power. This suggests real consumption growth could be even weaker in the third quarter than the 3% annualised pace we had pencilled in. Moreover, the details suggest that the July retail sales data came too early to capture much impact from the continued rapid spread of the Delta coronavirus variant, which contributed to a renewed plunge in consumer confidence in early August. The upshot is that, although the July payrolls figures suggested that labour shortages won’t be as big a drag as we had previously feared, economic growth still looks likely to slow more sharply over the second half of the year than most anticipate.