US retail sales rose solidly in June as households boosted purchases of automobiles and a range of other goods, cementing expectations for robust economic growth in the second quarter.
Signs of a strengthening economy, together with a tightening labor market and firming inflation, likely will keep the Federal Reserve on track to continue raising interest rates this year.
"Solid Pace"
Fed Chairman Jerome Powell offered an upbeat assessment of the economy last Friday, telling lawmakers that "over the first half of this year, overall economic activity appears to have expanded at a solid pace." The US central bank raised interest rates in June for the second time this year and has forecast two more rate hikes by the end of 2018.
"This puts the economy in a very, very good position as it starts its tenth year of forward movement in July," said Chris Rupkey, chief economist at MUFG in New York. "This strengthening economy gives the Federal Reserve the green light to raise rates a third time this year at their September meeting."
The Commerce Department said on Monday that retail sales increased 0.5% last month. Data for May was revised higher to show sales rising 1.3% instead of the previously reported 0.8% gain.
May's gain in retail sales was the largest since September 2017. Economists polled by Reuters had forecast retail sales rising 0.5% in June. Retail sales in June increased 6.6% from a year ago.
Core Retail Sales
Excluding automobiles, gasoline, building materials and food services, retail sales were unchanged last month after an upwardly revised 0.8% increase in May.
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 risen 0.5% in May.
Given the upward revision to May's data, the unchanged reading in core retail sales last month likely does not change views that consumer spending accelerated in the second quarter.
Consumer spending, which accounts for more than two-thirds of US economic activity, braked sharply in the January-March period, growing at its slowest pace in nearly five years.
The dollar pared losses against a basket of currencies after the data, while stocks on Wall Street were flat. US Treasuries were lower, with the yield on the interest rate-sensitive two-year note rising to its highest level since August 2008.
Robust Growth Forecast
In addition to the solid retail sales data, a sharp narrowing of the trade deficit in April and May has also bolstered expectations of a strong GDP reading for the second quarter. Second-quarter growth expectations were also boosted by another report from the Commerce Department on Monday showing business inventories increased 0.4% in May.
Growth estimates for the April-June quarter are as high as a 4.9% annualized rate. The economy grew at a 2.0% pace in the first three months of 2018. The government will publish its snapshot of second-quarter GDP later this month.
Separate data from the New York Fed on Monday showed a slight moderation in factory activity in New York state in July amid a pullback in new order growth and shipments. Factory employment in the region remained solid this month.
A strong labor market should underpin consumer spending.
June Sales Figures
In June, auto sales increased 0.9% after advancing 0.8% in May. Receipts at service stations rose 1.0% on higher gasoline prices.
Sales at building material stores increased 0.8% last month after surging 2.5% in May. Online and mail-order retail sales jumped 1.3%, the biggest gain since November 2017, after rising 0.4% in May.
Receipts at furniture stores rebounded 0.6%. Sales at restaurants and bars increased 1.5% in June.
But receipts at clothing stores fell 2.5%, the biggest drop since February 2017. There were also decreases in sales at supermarkets, electronics and appliance stores, as well as general merchandise stores.
Spending at hobby, musical instrument and book stores declined further, falling 3.2%. That was the largest drop since December 2017.
News by Reuters, edited by ESM. Click subscribe to sign up to ESM: European Supermarket Magazine.
