U.S. retail sales in July indicated consumer spending continues to be robust, providing something of an antidote to fears of a recession.
The Commerce Department reported Thursday that retail sales increased 0.7% last month after gaining 0.3% in June. It was the largest monthly gain since March.
Economists polled by Reuters had forecast retail sales would rise 0.3% in July. Excluding automobiles, gasoline, building materials and food services, sales jumped 1.0% last month after advancing by 0.7% in June.
“The steady pace of consumer spending at local retail stores and internet sites is a reassuring sign for a U.S. economy that’s facing mounting hurdles, particularly a festering trade dispute with China that’s sent Wall Street stocks tumbling,” MarketWatch said.
According to Reuters, however, the July report “will likely not change expectations that the Federal Reserve will cut interest rates again next month as news from the manufacturing sector remains dour.” Manufacturing output, the biggest component of industrial production, fell 0.4% in July from a month earlier, the Fed said Thursday.
The central bank lowered its short-term interest rate by a quarter of a percentage point last month, citing the U.S.-China trade fight and slowing global economies.
“The consumer is incredibly resilient,” said Lindsey Piegza, chief economist at Stifel in Chicago. “But without growth from housing investment and manufacturing, the consumer will be hard-pressed to continue to alone support the U.S. economy.”
Consumer spending, which accounts for more than two-thirds of the economy, is being underpinned by the lowest unemployment rate in nearly half a century. In the second quarter, spending grew at a 4.3% annualized rate.
Compared to July last year, retail sales increased 3.4%, with receipts at service stations rebounding 1.8%, reflecting higher gasoline prices, and online and mail-order retail sales jumping 2.8%, the most in six months.
“Consumers are lifting economic growth and easing pressure on the Federal Reserve to cut more aggressively, but the trade war itself, and the rhetoric that accompanies it, will push for more rate cuts,” said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto.
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