Shoppers enter the Kate Spade Madison Avenue store, in New York. Law enforcement officials say fashion designer Kate Spade has been found dead in her apartment in an apparent suicideKate Spade Death, New York, USA - 05 Jun 2018

Americans headed out to the shops in force last month to update their summer wardrobes and gave the economy a boost — but that wasn’t enough to save retail on Wall Street Wednesday.

Despite a strong monthly sales report from the Commerce Department, investors zeroed in on Macy’s Inc., which saw its stock drop 16 percent to $35.15 after the department store lifted its full-year outlook, but still posted a slight sales decline the second quarter.

Macy’s troubles weighed heavily on the sector in what was already a down day for the market, with investors worrying over Turkey’s currency crisis and continuing trade tensions.

Among those hardest hit in retail were Dillard’s Inc., down 10.9 percent to $82.98; Guess Inc., 9.6 percent to $21.80; J.C. Penney Co. Inc., 8.7 percent to $2.41; Abercrombie & Fitch Co., 8.6 percent to $26.74; Urban Outfitters Inc., 7 percent to $45.33; Nordstrom Inc., 5.5 percent to $51.86, and Kohl’s Corp., 5.7 percent to $74.39. 

The Dow Jones Industrial Average finished the day down 138 points, or 0.5 percent, to 25,162, while the S&P 500 slid 0.8 percent to 2,818, its biggest one-day drop since June.

The day started out on a much more upbeat note with good news on the sales front.

Strong showings from specialty and department stores as well as Amazon’s record-breaking Prime Day were among the main factors behind better-than-expected retail spending figures in July.

U.S. retail sales grew 0.5 percent for the month, beating analysts’ predictions for a meager 0.1 percent rise. On an annual basis, sales were up 6.4 percent.

Sales at apparel and accessories specialty stores rose 1.3 percent while department stores gained 1.2 percent, helping to push up the headline number and marking a turnaround for the categories, which both posted declines in June.

And a record Amazon Prime Day — where shoppers bought more than 100 million products over the 36-hour event — played its part, with online and mail-order sales up 0.8 percent in July.

Investors may have also been treating the retail sales figures with some caution as June’s numbers were downwardly revised from up 0.5 percent to 0.2 percent and experts were mixed on just how much consumers can boost growth over the next few months.

“We expect this trend to continue through 2018 on the back of a strong economy, with record low unemployment and rising consumer confidence, with total year over year retail sales growth for 2018 coming in at the higher end of our current forecast of 3.5 percent to 4.5 percent,” said Mickey Chadha, vice president of Moody’s Investors Service.

In contrast, Andrew Hunter, U.S. economist at Capital Economics, forecast that real consumption growth would slow to between an annualized rate of 2.5 percent and 3 percent in the third quarter, with overall GDP growth slowing to a similar rate.

“Despite the continued strength of retail sales in July, real consumption growth still looks set for a gradual slowdown in the third quarter, as the boost from the recent tax cuts starts to fade,” he said.

Strong consumer spending was the main reason behind the U.S. economy’s best performance in almost four years in the second quarter. The outlays were supported by last year’s $1.5 trillion-dollar tax cut and a strong jobs market, but some economists are concerned about how long this can last as interest rates rise and the trade war shows no sign of abating.

While the Federal Reserve did not increase interest rates this month, it is widely expected to boost rates in September from their current level of 2 percent as it continues to wean consumers off years of easy monetary policies.

The Fed has already raised rates seven times since 2015, and Americans will have to brace themselves for several more over the next couple of years, with the central bank expecting rates to hover around 3.4 percent in 2020.

At the same time, the U.S. is gearing up to slap additional 25 percent tariffs on a raft of Chinese imports, many consumer-facing, and has pledged to go even further and target all imports if China further provokes the White House.

Jack Kleinhenz, chief economist at the National Retail Federation, said: “Consumer spending is the backbone of the current economic expansion but the fly in the ointment is uncertainty regarding tariffs. If they escalate, they will no doubt weigh on confidence and household spending.”

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