Strong US retail sales bolster Q3 growth outlook

WASHINGTON (Reuters) – US retail sales recorded their biggest increase in seven months in July as consumers boosted purchases of motor vehicles and raised discretionary spending, suggesting the economy continued to gain momentum early in the third quarter.

Retail sales for June and May also were revised higher, which should help to assuage concerns about consumer spending after a slowdown at the start of the year. Tuesday’s upbeat report from the Commerce Department likely keeps the Federal Reserve on course to raise interest rates again in December.

“American shoppers flocked to the malls 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. “It should tamp down chatter about the Fed delaying rate hikes until next year.”

Retail sales jumped 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 increasing 0.4 percent in July. May’s retail sales were revised to show no change rather than the previously reported 0.1-percent dip. Retail sales increased 4.2 percent in July on a year-on-year basis.

Excluding automobiles, gasoline, building materials and food services, retail sales surged 0.6 percent last month after an upwardly revised 0.1 percent gain in June. These so-called core retail sales, which correspond most closely with the consumer spending component of gross domestic product, were previously reported to have dipped 0.1 percent in June.