WASHINGTON: US retail sales increased more than expected in June, pointing to strong consumer spending, which could help to blunt some of the drag on the economy from weak business investment.
The report from the Commerce Department on Tuesday did not change market expectations that the Federal Reserve will cut interest rates this month for the first time in a decade.
But signs of strong consumer spending and rising underlying inflation suggest the US central bank is unlikely to cut rates by 50 basis points at its July 30-31 policy meeting as markets had initially anticipated.
Fed Chairman Jerome Powell last week told lawmakers the central bank would "act as appropriate" to protect the economy against risks stoked by a trade war between the United States and China, as well as slowing global growth.
"It certainly will counteract weak business spending to some degree," said Robert Frick, corporate economist at Navy Federal Credit Union in Vienna, Virginia. "Given that the Fed is most worried about foreign economies and the threat of an escalating trade war, it is unlikely to dissuade them from cutting rates soon."
Retail sales increased 0.4pc last month as households stepped up purchases of motor vehicles and a variety of other goods. Data for May was revised slightly down to show retail sales gaining 0.4pc, instead of rising 0.5pc as previously reported.
Economists polled by Reuters had forecast retail sales edging up 0.1pc in June. Compared to June last year, retail sales advanced 3.4pc.
Excluding automobiles, gasoline, building materials and food services, retail sales jumped 0.7pc last month after an upwardly revised 0.6pc increase in May. These so-called core retail sales, which correspond most closely with the consumer spending component of gross domestic product, were previously reported to have increased 0.4pc in May.
June's strong gain in core retail sales, coming on the heels of solid increases in April and May, suggested an acceleration in consumer spending in the second quarter. Consumer spending grew at its slowest pace in a year in the first quarter.
The dollar held gains versus a basket of currencies after the data, while US Treasury yields rose.
BROAD GAINS
Consumer spending is being supported by a tight labor market, even as the broader economy is slowing as weaker business investment, an inventory overhang, a trade war between the United States and China, and softening global growth pressure manufacturing.
The Atlanta Fed is forecasting GDP increased at a 1.4pc annualized rate in the second quarter. The economy grew at a 3.1pc pace in the January-March quarter. The government will publish its snapshot of second-quarter GDP next Friday. The economy is losing speed in part as last year's stimulus from massive tax cuts and more government spending fades.
Auto sales increased 0.7pc in June after a similar gain in May. Receipts at service stations fell 2.8pc, reflecting cheaper gasoline. Sales at building material stores rebounded 0.5pc after dropping 1.5pc in May.
Receipts at clothing stores rose 0.5pc. Online and mail-order retail sales climbed 1.7pc, matching May's increase. Receipts at furniture stores advanced 0.5pc. Sales at restaurants and bars surged 0.9pc. Spending at hobby, musical instrument and book stores was unchanged.
While core inflation perked up in June, gains are likely to remain moderate. A separate report on Tuesday from the Labor Department showed import prices dropped 0.9pc last month, the biggest decrease in six months, after being unchanged in May.
Import prices, which exclude tariffs, were held down by a 6.2pc drop in the cost of petroleum products. There were also decreases in the prices of imported food and capital goods.
The cost of goods imported from China slipped 0.1pc, matching May's drop. Prices of Chinese goods fell 1.5pc in the 12 months through June, the largest decrease since February 2017.
Comments
Comments are closed.