Skip to main content

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.

Story continues below advertisement

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 0.4 per 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 0.4 per cent, instead of rising 0.5 per cent as previously reported.

Economists polled by Reuters had forecast retail sales edging up 0.1 per cent in June. Compared to June last year, retail sales advanced 3.4 per cent.

Excluding automobiles, gasoline, building materials and food services, retail sales jumped 0.7 per cent last month after an upwardly revised 0.6 per 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 0.4 per 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.

Story continues below advertisement

BROAD GAINS

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 1.4 per cent annualized rate in the second quarter. The economy grew at a 3.1 per 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 0.7 per cent in June after a similar gain in May. Receipts at service stations fell 2.8 per cent, reflecting cheaper gasoline. Sales at building material stores rebounded 0.5 per cent after dropping 1.5 per cent in May.

Receipts at clothing stores rose 0.5 per cent. Online and mail-order retail sales climbed 1.7 per cent, matching May’s increase. Receipts at furniture stores advanced 0.5 per cent. Sales at restaurants and bars surged 0.9 per 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 0.9 per cent last month, the biggest decrease in six months, after being unchanged in May.

Import prices, which exclude tariffs, were held down by a 6.2 per cent drop in the cost of petroleum products. There were also decreases in the prices of imported food and capital goods.

Story continues below advertisement

The cost of goods imported from China slipped 0.1 per cent, matching May’s drop. Prices of Chinese goods fell 1.5 per cent in the 12 months through June, the largest decrease since February 2017.

Report an error
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

Cannabis pro newsletter