WASHINGTON, July 16 (Reuters): US retail sales were unchanged in June as a drop in receipts at auto dealerships was offset by strength elsewhere, a show of consumer resilience that boosts economic growth prospects for the second quarter.
The report from the Commerce Department on Tuesday, which showed sales for May were higher than initially estimated, did not change expectations that the Federal Reserve could start cutting interest rates in September amid cooling inflation. It also helped to assuage fears of a sharp slowdown in the economy.
"The economy is in pretty good shape, there are signs of softness around the edges where low and moderate income consumers are pulling back ... but openhanded spending by affluent consumers is keeping the economy as a whole moving forward," said Bill Adams, chief economist at Comerica Bank.
The unchanged reading in retail sales last month followed an upwardly revised 0.3 per cent gain in May, the Commerce Department's Census Bureau said. Economists polled by Reuters had forecast retail sales, which are mostly goods and are not adjusted for inflation, would fall 0.3 per cent after a previously reported 0.1 per cent gain in May. Retail sales increased 2.3 per cent on a year-on-year basis in June.
Momentum has, however, slowed from the 7.7 per cent gain logged in January 2023. After a period of high inflation, households are trading down and seeking cheaper alternatives, as evident in earnings reports from major retailers and manufacturers.
PepsiCo CEO Ramon Laguarta said last week that lower-income consumers were "stretched" and "strategizing a lot to make their budgets get to the end of the month."
Online store sales jumped 1.9 per cent last month, adding to a 1.1 per cent increase in May. Sales at gasoline stations dropped 3.0 per cent, reflecting lower prices at the pump. Cheaper gasoline is likely freeing money for other spending.
Building material and garden equipment store sales increased 1.4 per cent. Sales at food services and drinking places, the only services component in the report, gained 0.3 per cent after rising 0.4 per cent in May. Economists view dining out as a key indicator of household finances.
Furniture store sales rose 0.6 per cent. Receipts at electronics and appliance outlets rose 0.4 per cent, while those at clothing retailers increased 0.6 per cent. Sales at sporting goods, hobby, musical instrument and book stores dipped 0.1 per cent.
Receipts at motor vehicles and parts dealers declined 2.0 per cent. A cyberattack at software systems provider CDK hit operations at several auto dealerships during the second half of June.
'RESILIENT PACE'
Retail sales excluding automobiles, gasoline, building materials and food services surged 0.9 per cent last month after rising by an unrevised 0.4 per cent in May. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.
Economists now estimate that consumer spending, which accounts for more than two-thirds of the economy, grew at a 2.0 per cent annualized rate in the second quarter.
