U.S. retail sales strongly rise in July

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U.S. consumers were seen boosting spending in July marking a robust start to consumer spending for the third quarter beginning. The data comes in the backdrop of the stronger labor market and high consumer confidence.

Confidence remains high as the U.S. economy is seen surging ahead at a steady pace in the second quarter. The Federal Reserve had hiked interest rates twice this year and the next rate hike is expected at the September meeting. The Fed is set to hike rates two more times for the remainder of the year.

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Retail sales which measure the spending at U.S. stores (both offline and online) including restaurants rose 0.5% on a month over month basis in July. On a seasonally adjusted basis, retail sales increased $507.5 billion during the month. On a yearly basis, retail sales rose 6.4%.

U.S. retail sales june 2018
U.S. retail sales 0.5%, June 2018 (m/m). Source: Tradingeconomics.com

The data was higher than the median forecasts which pointed to a 0.1% increase during the period. In June, retail sales were revised down to 0.2% from the initial estimates of 0.5% reported earlier.

Spending at grocery stores, restaurants and clothing surged during the reporting month. Excluding motor vehicle sales, retail sales increased 0.6% and excluding gasoline, sales jumped 0.6%. Food and beverage sales increased 0.6% during the month marking the highest pace of gains since December last year.

Consumer spending which is seen as a key driver of the U.S. economy and representing about two-thirds of the economic output was seen to be stronger.

This comes as the first quarter showed that consumer spending had slowed. However, spending started to rise again from the start of the second quarter. The latest report indicated that the momentum was maintained for the beginning of the third quarter in July.

Consumers were seen spending more at gas stations on a modest decline in fuel prices. Price for a gallon of fuel in July fell to $2.85 compared to $2.89 in the previous month. Sales at gas stations were seen rising at a seasonally adjusted pace of 0.8% on the month to rise to 2.2% on an annualized basis.

us retail rise

Department store sales were seen rising strongly in July at a pace of 1.2%. Non-store retailers including online stores saw sales rising 0.8% on the month.

The retail sales report comes following the July jobs report released a few weeks ago. The U.S. unemployment rate was seen at 3.9% while wages have been growing at a steady pace. The strong labor market was seen boosting consumer spending.

A separate measure of consumer spending, the consumer confidence index was seen staying at record highs. Spending was also seen gaining from the tax cuts to consumers and tax overhaul for businesses.

By some estimates, the third quarter GDP is being estimated to have increased at an average pace of 4.1%.

In a separate report, the quarterly non-farm productivity was seen rising 2.9% in the second quarter as output jumped 4.8% with an increase in the number of hours worked as well.

Unit labor costs, however, decreased 0.9% in the second quarter while output jumped 1.0%. Productivity increased in the manufacturing and durable goods sector.

Preliminary GDP reports indicated that the U.S. economy advanced 4.1% for the second quarter. The second revised estimate is expected to be released later in August. While the U.S. economy is currently enjoying a strong patch of economic growth, many economists warn that growth could be hit in the coming quarters.

Concerns arise about the U.S. trade wars and the impact of retaliatory trade measures being taken especially by China. The third quarter GDP is expected to remain high but somewhat subdued compared to the second quarter’s above 4% GDP growth.

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