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Robust US retail sales in June amidst easing inflation

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2023-07-20

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Retail sales in the United States increased for the third consecutive month in June, signalling consumers' ongoing resilience amidst easing inflation and a robust labour market.

According to the Commerce Department, retail sales rose by a seasonally adjusted 0.2% last month compared to May. Although the pace was slower than the previous two months, it matched the 0.2% increase in consumer prices, indicating that spending is keeping pace with inflation.

Consumer spending has been a driving force behind the resilient US economy this year, with wage growth outpacing cooling inflation. Despite the Federal Reserve's interest rate hikes, Americans continue to spend steadily.

The report revealed mixed results across various retail sectors. Furniture, electronics, and online shopping experienced increased spending, while grocery stores, petrol stations, hardware stores, and sporting goods stores saw a decline. Sales at bars and restaurants remained relatively flat.

Economist James Knightley from ING noted that the report paints a varied picture of spending at present and suggests a loss of momentum in the retail sector.

Although retail sales figures do not account for inflation, consumers have experienced some relief as inflation rates have eased since last summer.

The consumer price index rose 3% in June compared to the previous year, down from a 4% increase in May. As price pressures have abated, consumer sentiment has improved, reaching a near two-year high in July, according to the University of Michigan's survey.

It is important to note that the retail sales report primarily captures spending on goods and does not provide a complete picture of overall spending, excluding most services. The Commerce Department is set to release a more comprehensive report later this month that will include additional spending figures.

While spending has remained strong thus far, some economists anticipate a slowdown if high interest rates persist. Higher interest rates can make large purchases, such as vehicles and appliances, less affordable for consumers who rely on financing. It can also lead to increased credit card balances, potentially limiting future spending.

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