WASHINGTON: U.S. retail sales increased more than expected in June, pointing to strong consumer spending, which could help to blunt some of the drag on the economy from weak business investment.
The report from the Commerce Department on Tuesday did not change market expectations that the Federal Reserve will cut interest rates this month for the first time in a decade.
But signs of strong consumer spending and rising underlying inflation suggest the U.S. central bank is unlikely to cut rates by 50 basis points at its July 30-31 policy meeting as markets had initially anticipated.
Fed Chairman Jerome Powell last week told lawmakers the central bank would “act as appropriate” to protect the economy against risks stoked by a trade war between the United States and China, as well as slowing global growth.
“It certainly will counteract weak business spending to some degree,” said Robert Frick, corporate economist at Navy Federal Credit Union in Vienna, Virginia. “Given that the Fed is most worried about foreign economies and the threat of an escalating trade war, it is unlikely to dissuade them from cutting rates soon.”
Retail sales increased 0.4per cent last month as households stepped up purchases of motor vehicles and a variety of other goods. Data for May was revised slightly down to show retail sales gaining 0.4per cent, instead of rising 0.5per cent as previously reported.
Economists polled by Reuters had forecast retail sales edging up 0.1per cent in June. Compared to June last year, retail sales advanced 3.4per cent.
Excluding automobiles, gasoline, building materials and food services, retail sales jumped 0.7per cent last month after an upwardly revised 0.6per cent increase in May. These so-called core retail sales, which correspond most closely with the consumer spending component of gross domestic product, were previously reported to have increased 0.4per cent in May.
June’s strong gain in core retail sales, coming on the heels of solid increases in April and May, suggested an acceleration in consumer spending in the second quarter. Consumer spending grew at its slowest pace in a year in the first quarter.
The dollar held gains versus a basket of currencies after the data, while U.S. Treasury yields rose.
Consumer spending is being supported by a tight labor market, even as the broader economy is slowing as weaker business investment, an inventory overhang, a trade war between the United States and China, and softening global growth pressure manufacturing.
The Atlanta Fed is forecasting GDP increased at a 1.4per cent annualized rate in the second quarter. The economy grew at a 3.1per cent pace in the January-March quarter. The government will publish its snapshot of second-quarter GDP next Friday. The economy is losing speed in part as last year’s stimulus from massive tax cuts and more government spending fades.
Auto sales increased 0.7per cent in June after a similar gain in May. Receipts at service stations fell 2.8per cent, reflecting cheaper gasoline. Sales at building material stores rebounded 0.5per cent after dropping 1.5per cent in May.
Receipts at clothing stores rose 0.5per cent. Online and mail-order retail sales climbed 1.7per cent, matching May’s increase. Receipts at furniture stores advanced 0.5per cent. Sales at restaurants and bars surged 0.9per cent. Spending at hobby, musical instrument and book stores was unchanged.
While core inflation perked up in June, gains are likely to remain moderate. A separate report on Tuesday from the Labor Department showed import prices dropped 0.9per cent last month, the biggest decrease in six months, after being unchanged in May.
Import prices, which exclude tariffs, were held down by a 6.2per cent drop in the cost of petroleum products. There were also decreases in the prices of imported food and capital goods.
The cost of goods imported from China slipped 0.1per cent, matching May’s drop. Prices of Chinese goods fell 1.5per cent in the 12 months through June, the largest decrease since February 2017.
(Reporting by Lucia Mutikani; Editing by Andrea Ricci)
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