Consumer spending remained resilient in July, as indicated by a stronger-than-expected performance in retail sales, according to the advanced retail sales report released by the Commerce Department. The data showed a seasonally adjusted increase of 0.7% for the month, surpassing the estimated 0.4%. Excluding automobile sales, retail sales rose by a robust 1%, also beating the 0.4% forecast. This performance indicates that consumers have managed to keep pace with the prevalent price increases over the past two years, as the consumer price index (CPI) rose by 0.2% on the month.
The report revealed a significant 1.9% surge in spending at online retailers, while sporting goods and related stores increased by 1.5%, and food service and drinking places rose by 1.4%. However, furniture sales dropped by 1.8%, and electronics and appliance stores reported a 1.3% decrease. Gas station sales rose by only 0.4% despite rising pump prices.
This data adds to the narrative that the U.S. economy might avoid a recession that was predicted due to a series of Federal Reserve interest rate hikes aimed at controlling inflation. Despite multiple rate increases, consumers have continued to drive economic activity.
The report showed a widespread increase in spending across most categories, with the exception of a 0.3% decline in motor vehicle sales. On a 12-month basis, sales increased by 3.2%, aligning with the annual increase in the CPI.
However, another report indicated that inflation pressures were still present, even though they declined from their peak in the summer of the previous year. Import prices rose by 0.4% in July, higher than the estimated 0.2%. The year-over-year rate declined by 4.4%, compared to an 8.8% annual increase a year ago.
In light of the strong retail sales data for July, experts have pointed out that while a “soft landing” for the economy is possible, it might not be the most probable outcome. Additionally, the Empire State Manufacturing Survey for August showed a decline of 20 points to a reading of -19, which was much lower than the estimated -1.4. Despite this, the index for future business conditions, which measures expectations six months ahead, increased by 6 points to 19.9, indicating positive sentiment for the coming months.
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