Retail sales were lower than predicted last month
Spending at US retailers in the previous month fell short of expectations, even with the World Cup attracting international tourists and the occurrence of online sales events. Retail sales increased by 0.2% in June compared to the previous month, according to the Commerce Department’s report released on Thursday, a significant decline from May’s revised increase of 1%. That was lower than expectations of a 0.3% increase, according to a poll of economists. Retail sales figures are modified to account for seasonal fluctuations, yet they do not take inflation into consideration. The World Cup and Amazon’s Prime Day sale contributed to an increase in spending last month, as noted by economists. However, the decline in petrol prices negatively impacted the government’s retail figures, given that these figures are not adjusted for inflation. Excluding sales at petrol stations, spending in June increased by a robust 0.7%. A measure of retail spending that excludes volatile categories, such as sales of building materials and petrol, increased by 0.5% in June. This marks a decline from May’s 0.8% rise, yet it slightly surpasses the anticipated 0.4% increase. That indicates underlying consumer demand remained robust last month.
For the Federal Reserve, which sets interest rates, robust economic growth coupled with elevated inflation suggests that officials are less inclined to lower interest rates, maintaining their current trajectory of keeping rates unchanged in the upcoming months. For the Federal Reserve to consider resuming rate cuts, it would be necessary for policymakers to observe a deceleration in inflation approaching their 2% annual target or to identify increasing indications of an economic slowdown. “Despite challenges, consumers are still spending and the labor market shows no signs of cracking,” Ellen Zentner wrote in commentary issued Thursday. “This type of data won’t move the Fed’s needle either way, but it underscores the ongoing resilience of the US economy.” Consumer spending, representing approximately two-thirds of the US economy, has remained resilient this year, even in the face of elevated inflation and notably subdued consumer sentiment.
Thursday’s report indicated that sales experienced an increase across the majority of categories last month, with the most significant growth observed among online retailers (1.9%) — presumably attributed to the Prime Day sale — and car dealerships (1.9%). Retail spending experienced a significant contraction at petrol stations, decreasing by 5.3%, while health and personal care stores saw a more modest decline of 0.8%. Expenditure at dining establishments and drinking venues experienced a modest increase of 0.1% in the previous month, even in the face of a surge in visitors due to the World Cup. Sales at department stores experienced a modest increase of merely 0.1% in June. That is partly attributable to low layoffs and a still-robust labour market; however, low-income households are experiencing the adverse effects of price increases and rising debt to a greater extent than their high-income counterparts, who have reaped the benefits of a resilient equity market. Economists characterise that divergence as the K-shaped economy.
The resilience of the American shopper is a positive indicator for economic growth. The Federal Reserve Bank of Atlanta estimates that gross domestic product exceeded 1% in the second quarter. However, it remains uncertain whether consumers will maintain their spending habits in the upcoming months, particularly if the ongoing conflict in the Middle East continues, which could hinder energy prices from remaining at pre-war levels. “A renewed slowdown in spending, however, beckons over the second half of this year,” Oliver Allen wrote in an analyst note Thursday. “The lift to cashflow from tax refunds now has faded, leaving consumers far more exposed to the real income shock from the jump in gas prices.”
