U.S. retail sales on rebound
Cash-flush Americans boost growth
WASHINGTON (Reuters) — U.S. retail sales unexpectedly increased in June as demand for goods remained strong even as spending is shifting back to services, bolstering expectations that economic growth accelerated in the second quarter.
The rebound in sales reported by the Commerce Department on Friday was despite purchases of motor vehicles declining again because of a lack of supply caused by a global semiconductor shortage. The scarcity of new motor vehicles is boosting demand for used cars and trucks, helping to fuel inflation.
Vaccinations against COVID-19, low interest rates and massive fiscal stimulus are underpinning retail sales.
"Many retailers are benefiting from increased traffic in stores as well as higher prices for items on the shelves, a much-needed bounce back for many service-sector businesses," said Ben Ayers, senior economist at Nationwide in Columbus, Ohio.
Retail sales rose 0.6 per cent last month. Data for May was revised down to show sales falling 1.7 per cent instead of declining 1.3 per cent, as previously reported.
Sales surged 18.0 per cent compared to June last year and are now well above their pre-pandemic level. Demand shifted to goods like electronics and motor vehicles during the pandemic as millions of people worked from home, took online classes and avoided public transportation.
Spending is rotating back to services like travel and entertainment, with at least 160 million Americans fully immunized against COVID-19. Retail sales are mostly goods, with services such as health care, education, travel and hotel accommodation making up the remaining portion of consumer spending.
Restaurants and bars are the only services category in the retail sales report.
BROAD GAINS
Receipts at auto dealerships fell 2.0 per cent after declining 4.6 per cent in May. Sales at clothing stores increased 2.6 per cent. Consumers increased spending at restaurants and bars, leading to a 2.3 per cent rise in receipts. Sales at restaurants and bars increased 40.2 per cent compared to June 2020.
Receipts at electronics and appliance stores rose 3.3 per cent and sales at furniture stores fell 3.6 per cent. Sales at sporting goods, hobby, musical instrument and book stores dropped 1.7 per cent. Receipts at food and beverage stores gained 0.6 per cent. Sales at building material stores fell 1.6 per cent.
Online retail sales rose 1.2 per cent, likely lifted by Amazon's Prime Day, which was emulated by other retailers.
Excluding automobiles, gasoline, building materials and food services, retail sales increased 1.1 per cent last month after a downwardly revised 1.4 per cent decrease in May. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.
"With the economy reopening, services spending has begun to pick up and could pull some spending away from goods toward some services that are not captured in the retail sales report," said Kevin Cummins, chief U.S. economist at Natwest Markets in Stamford, Connecticut.
Economists expect consumer spending, which accounts for more than two-thirds of U.S. economic activity, logged double-digit growth in the second quarter. Consumer spending grew at an 11.4 per cent annualized rate in the first quarter.
American households accumulated at least US$2.5 trillion in excess savings during the pandemic, which is expected to drive spending this year and beyond. From July through December, some households will receive income under the expanded Child Tax Credit program, which will soften the blow of an early termination of government-funded unemployment benefits in at least 24 states.
Gross domestic product growth estimates for this quarter are around a nine per cent rate, which would be an acceleration from the 6.4 per cent pace notched in the first quarter. Economists believe the economy could achieve growth of at least seven per cent this year. That would be the fastest growth since 1984. The U.S. economy contracted 3.5 per cent in 2020, its worst performance in 74 years.
CONSUMERS
Coincidentally on Friday, U.S. consumer sentiment was shown to have fallen sharply and unexpectedly in early July to the lowest level in five months as inflation worries dented confidence in the economic recovery.
The University of Michigan said its preliminary consumer sentiment index fell to 80.8 in the first half of this month, the lowest since February, from a final reading of 85.5 in June.
"Consumers' complaints about rising prices on homes, vehicles, and household durables has reached an all-time record," Richard Curtin, the survey director, said in a statement.
The survey's gauge of current economic conditions also fell to a reading of 84.5, the lowest since August 2020, from 88.6 in June. Its measure of consumer expectations slid to 78.4, the lowest since February, from 83.5.
The survey's one-year inflation expectation shot to the highest level since August 2008 at 4.8 per cent, up from 4.2 per cent, while its fiveyear inflation outlook ticked up to 2.9 per cent from 2.8 per cent in June.