In America, retail shopping long ago passed the realm of necessity, and became a sport-like activity. A recent survey found that two in five Americans engage in “retail therapy.” They buy things not because they need them, but for that little kick of dopamine.

Feeling down about lingering COVID, higher borrowing costs, or the carnage of the Russia-Ukraine war? When the going gets tough…the tough go shopping.

This dynamic helps explain why, despite high inflation, rising interest rates, recession fears, and geopolitical turmoil, U.S. consumers have kept their wallets and purses open.

The latest retail sales report for July wasn’t blockbuster good news, but it showed consumer resilience amid economic headwinds.

The U.S. Census Bureau reported Wednesday that retail and food services sales were flat month-over-month in July, versus a forecast rise of 0.1%. For the previous month, the number was revised upward to 0.8%, up from the initially reported 1.0%.

Core retail sales (excluding auto and gas) rose 0.4% month-over-month in July, beating the forecast of -0.1%. Online sales increased 2.7%.

Non-store retail sales for July 2022 were up 2.7% from June 2022, and up 20.2% from July 2021. “Non-store” refers to retailing that takes place outside traditional brick-and-mortar locations. There are many types of retailing that don’t occur at a physical store, such as e-commerce, off-premise direct selling, and distance selling.

Retail and food services seasonally adjusted sales were $682.8 billion in July 2022, virtually unchanged from June 2022, but up a robust 10.3% from July 2021 (see chart).

U.S. Treasury two-year and 10-year yields edged higher Wednesday after release of the retail sales data, on concerns about economic growth.

After the opening bell Wednesday, U.S. stocks were trading in the red. Wall Street was underwhelmed by July’s retail sales figures. That said, as of this writing, the S&P 500 is 17.4% higher than its June low.

In my view, a negative response to Wednesday’s retail data is unwarranted. The underlying strength of retail sales persists, as evidenced in the operating results of major retailers that beat second-quarter earnings expectations.

Second-quarter 2022 operating results this week from big box retailers have been mostly positive: Walmart (NYSE: WMT), Home Depot (NYSE: HD), and Lowe’s (NYSE: LOW) all beat earnings expectations. These bellwether retailers also reaffirmed full-year guidance.

However, Target (NYSE: TGT) fell way short on Q2 expectations, with earnings down year-over-year by a shocking 90%, as the retailer sells off unwanted inventory at deep discounts.

However, it’s worth noting that consumer sentiment in the U.S. improved in early August, with the University of Michigan’s Consumer Confidence Index climbing higher to 55.1 from 51.5 in July. This reading came in better than the market expectation of 52.5.

As long as the consumer hasn’t folded, we’ll probably keep a full-fledged recession at bay.

Intuitively, the resilience of the retailing sector makes sense. Wages, available jobs and the number of Americans working are all moving up. You don’t need a PhD in economics to figure it out: Extra dough from better wages and more stable jobs makes for more confident consumers.

Watch This Video: Death Knell For The Bear?

Strong retail sales help buoy the overall economy and feed into the virtuous cycle of prosperity for the country. Consumer spending accounts for more than two-thirds of U.S. economic activity and is the lifeblood of economic expansion. Consistent improvements in the employment situation this year directly feed consumer sales.

As I’ve pointed out before, the media exhibits a “negative bias” and as such, portrays the economy in terms that are bleaker than warranted by the facts. However, it seems word is out to most citizens that the job market is booming, and their chances of employment are markedly improved.

What’s more, the average nationwide price of gasoline in the U.S. sits at $3.94 per gallon (as of August 17), down from the June high point of more than $5.00/gal. That leaves more disposable income in the hands of consumers. (The political partisans who were shrilly decrying high gasoline prices have suddenly fallen silent on the subject.)

To be sure, retailers are grappling with a range of challenges, including supply chain disruptions and inflation. However, historically low unemployment levels are shoring up consumer sentiment and keeping shoppers engaged.

Amid higher prices. consumers are resorting to discounted products and bargain brands; retailers are accommodating this shift in buying preferences. Consumer spending has proven resilient as a whole, but we’re seeing the consumer discretionary segment take a hit.

As inflation pressures their profit margins, the shrewdest retailers are streamlining their supply chains, implementing cost cutting measures, and rotating inventories toward cheaper consumer items. They’re paring back inventory, closing unprofitable locations, and improving ordering patterns.

The result will be stronger, leaner retail companies poised to jump-start earnings when current headwinds (e.g., inflation) have dissipated. You should consider adding oversold but intrinsically sound retail stocks to your portfolio.

You should also take a look at another sector that’s currently rife with bargains: technology. Over the short term, macroeconomic policy has battered tech stocks. But over the long term, the next wave of tech innovation will put these companies back in the driver’s seat.

When inflation and supply chain disruptions are finally behind us, certain companies with proprietary know-how will explode on the upside. Click here for details.

John Persinos is the editorial director of Investing Daily.

Subscribe to John’s video channel: