US retail sales, manufacturing data bolster Q3 economic outlook

WASHINGTON (Reuters) – US retail sales rose more than expected in July as households boosted purchases of motor vehicles and clothing, suggesting the economy remained strong early in the third quarter.

Other data on Wednesday showed manufacturing output rising steadily last month and worker productivity growing at its fastest pace in more than three years in the second quarter, though a drop in labor costs pointed to moderate wage inflation.

Strong domestic demand supports expectations the Federal Reserve will raise interest rates in September for the third time this year, despite volatility in emerging markets that was sparked by an economic and political crisis in Turkey.

“The economy appears to be very well-positioned to continue to grow,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors in Kalamazoo, Michigan. “The persistently optimistic consumer sector is doing its part to keep the growth engine going, and retailers are benefiting.”

The Commerce Department said retail sales increased 0.5% last month. But data for June was revised lower to show sales gaining 0.2% instead of the previously reported 0.5% rise. Economists polled by Reuters had forecast retail sales nudging up 0.1% in July. Retail sales in July increased 6.4% from a year ago.

Excluding automobiles, gasoline, building materials and food services, retail sales advanced 0.5% last month after a downwardly revised 0.1% dip in June. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.

Core retail sales were previously reported to have been unchanged in June. Consumer spending is being supported by a tightening labor market, which is steadily pushing up wages. Tax cuts and higher savings are also underpinning consumption.

July’s increase in core retail sales suggested the economy started the third quarter on a solid footing after logging its best performance in nearly four years in the second quarter.