US consumer spending strong, but manufacturing struggles
washington — US retail sales surged in July as consumers bought a range of goods even as they cut back on motor vehicle purchases, which could help to assuage financial market fears that the economy was heading into recession.
The upbeat report from the Commerce Department on Thursday, however, will likely not change expectations that the Federal Reserve will cut interest rates again next month as news from the manufacturing sector remains dour.
Retail sales increased 0.7 per cent last month after gaining 0.3 per cent in June, the government said. Economists polled by Reuters had forecast retail sales would rise 0.3 per cent in July. Compared to July last year, retail sales increased 3.4 per cent. Excluding automobiles, gasoline, building materials and food services, retail sales jumped 1 per cent last month after advancing by an unrevised 0.7 per cent in June.
July’s gain in core retail sales suggested strong consumer spending early in the third quarter, though the pace will likely slow from the April-June quarter’s robust 4.3 per cent annualised rate. Consumer spending is being underpinned by the lowest unemployment rate in nearly half a century.
labour market still strong
While a separate report from the Labor Department on Thursday showed an increase in the number of Americans filing applications for unemployment benefits last week, the trend in claims continued to point to a strong labour market.
Solid consumer spending is blunting some of the hit on the economy from the downturn in manufacturing, which is underscored by weak business investment. There are, however, red flags for the labour market coming from manufacturing.
The sector’s struggles were highlighted by a third report from the Fed on Thursday showing factory production dropped 0.4 per cent in July. Output at factories has declined more than 1.5 per cent since December 2018. Manufacturing, which makes up about 12 per cent of the economy, is also being weighed down by an inventory overhang, especially in the automotive sector. —