US retail sales see biggest rise in 7 months
Print Edition
US retail sales recorded their biggest increase in seven months in July as consumers boosted purchases of motor vehicles and lifted discretionary spending, suggesting the economy continued to gain pace early in the third quarter.
Retail sales for June and May also were revised higher, which should help to assuage concerns about consumer spending, But persistently sluggish wage growth has pushed Americans to dip into their savings to fund spending. Economists say wage growth has to pick up to sustain consumer spending.
“American shoppers flocked to the malls and even department stores in July, suggesting consumers are well-positioned to propel the economy forward in the second half of the year,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto.
The Commerce Department said yesterday that retail sales added 0.6 percent last month, the largest gain since December 2016. June’s retail sales were revised to show a 0.3 percent gain instead of the previously reported 0.2 percent drop.
Economists had forecast retail sales adding 0.4 percent in July. May’s retail sales were revised to show no change instead of the previously reported 0.1 percent dip. Retail sales jumped 4.2 percent in July on a year-on-year basis.
Excluding automobiles, gasoline, building materials and food services, retail sales rose 0.6 percent last month after an upwardly revised 0.1 percent gain in June. These so-called core retail sales, which relate most closely with the consumer spending portion of gross domestic product, were previously reported to have dipped 0.1 percent in June.
Prices of US Treasuries extended losses after the data while the dollar gained against a basket of currencies. US stock index futures were trading higher.
Consumer spending, which accounts for more than two-thirds of US economic activity, increased at a 2.8 percent annualized rate in the second quarter. That boosted GDP growth to a 2.6 percent rate in the April-June period.
The acceleration in consumer spending in the second quarter came at the expense of savings, a trend that economists say is unsustainable. Annual wage growth has struggled to break above 2.5 percent.
The saving rate has dropped to 3.8 percent in the second quarter of this year from 6.2 percent in the second quarter of 2015. Low savings and tepid wage growth suggest households would need to borrow to maintain spending.
“The decline in the saving rate, however, raises some longer-term concerns about consumer spending,” said Michael Feroli, an economist at JPMorgan in New York. “Savings can’t drop indefinitely and future consumption growth will need to rely on stronger income growth.”
Motor vehicle sales climbed 1.2 percent in July, the biggest rise since December 2016, after advancing 0.9 percent in June. Faced with a huge inventory of unsold cars, auto dealerships are resorting to hefty discounts to attract buyers.
Prices for new motor vehicles saw their biggest drop in nearly eight years in July and have fallen for six straight months. Prices could fall more as a separate report from the Labor Department yesterday showed the cost of imported motor vehicles fell in July for the second straight month.
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