Washington (CNN) — Spending at US retailers last month was weaker than expected, despite the World Cup drawing tourists from around the world and online sales events.
Retail sales rose 0.2% in June from the prior month, the Commerce Department said Thursday, down sharply from May’s revised 1% increase. That was lower than expectations of a 0.3% increase, according to a poll of economists by data firm FactSet. Retail sales are adjusted for seasonal swings but not inflation.
The World Cup and Amazon’s Prime Day sale helped boost spending last month, according to economists, though lower gas prices weighed on the government’s retail figures, since they’re not adjusted for inflation. Excluding sales at gas stations, spending in June was up by a solid 0.7%.
A measure of retail spending that strips out volatile categories, such as sales of building materials and gasoline, rose 0.5% in June, down from May’s 0.8%, but slightly higher than expectations of a 0.4% increase. That shows underlying consumer demand continued to hum along last month.
For the Federal Reserve, which sets interest rates, robust economic growth coupled with elevated inflation means officials are less likely to lower interest rates, and stay on their current course of keeping rates unchanged in the coming months. To resume rate cuts, Fed policymakers would have to see inflation slowing toward their 2% annual target or growing signs of a weakening economy.
“Despite challenges, consumers are still spending and the labor market shows no signs of cracking,” Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management, 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.”
What a resilient US consumer means
Consumer spending, which accounts for about two-thirds of the US economy, has held up this year, despite higher inflation and unusually weak consumer sentiment.
Thursday’s report showed that sales were up across most categories last month, rising the most among online retailers (1.9%) — likely thanks to the Prime Day sale — and car dealerships (1.9%). Retail spending declined the most at gas stations, plummeting 5.3%, and at health and personal care stores, which fell 0.8%.
Spending at restaurants and bars edged higher by just 0.1% last month, despite an influx of World Cup tourists. Sales at department stores were also up by only 0.1% in June.
That’s partly due to low layoffs and a still-solid labor market, though low-income households are feeling the pain of price hikes and mounting debt more so than their high-income counterparts, who have benefited from a resilient stock market. Economists refer to that divergence as the K-shaped economy.
The American shopper’s resilience bodes well for economic growth. The Federal Reserve Bank of Atlanta estimates gross domestic product was north of 1% in the second quarter. But it’s unclear if consumers will continue to open their wallets in the coming months, especially if the conflict in the Middle East persists, preventing energy prices from staying at pre-war levels.
“A renewed slowdown in spending, however, beckons over the second half of this year,” Oliver Allen, senior US economist at Pantheon Macroeconomics, 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.”
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