US retail sales beat expectations; decline in manufacturing output
- Retail sales increased by 1.0% in June; May data revised upwards
- Core retail sales increase 0.8%; May data revised down
- Manufacturing output fell 0.5% in June
- Import prices gained 0.2%; core import prices fall by 0.5%
WASHINGTON, July 15 (Reuters) – U.S. retail sales rebounded sharply in June as Americans spent more on gasoline and other goods amid soaring inflation, which could soothe investors. fears of an impending recession but would not change the view that economic growth in the second quarter was tepid. .
The economic picture, however, is becoming increasingly confused. Manufacturing output fell for a second consecutive month in June, other data showed on Friday, implying a slowdown in demand as the Federal Reserve aggressively tightens monetary policy to bring inflation back to its 2% target. .
The retail sales data followed news this week that annual consumer prices rose the most last month since late 1981. The economy also continued to add jobs at a healthy pace in June. The reports cemented expectations that the US central bank will make another 75 basis point interest rate hike this month.
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“Padded by high savings and rising wages, American households are spending almost as much money as before, but largely to keep up with rising prices, not to buy more stuff,” said economist Sal Guatieri. Principal at BMO Capital Markets. in Toronto. “That said, today’s report may calm talk of a near-term recession.”
Retail sales rose 1.0% last month, the Commerce Department said. Data for May has been revised up to show sales fell 0.1% instead of 0.3% as previously reported. Retail sales rose 8.4% year over year and are 18% above their pre-pandemic trend.
Economists polled by Reuters had forecast retail sales to rise 0.8%, with estimates ranging from a 0.2% decline to a 2.2% increase. Retail sales are primarily made up of goods and are not adjusted for inflation. The Fed has raised its key rate by 150 basis points since March.
The almost across-the-board increase in retail sales last month was led by revenue at auto dealers, which rebounded 0.8% after falling 3.0% in May due to shortages. Service station sales increased by 3.6%. Gasoline prices jumped in June, averaging more than $5 a gallon, according to data from motorist advocacy group AAA. Prices at the pump have since declined from record highs last month and averaged $4.577 a gallon on Friday.
Revenue from bars and restaurants, the only service category in the retail sales report, rose 1.0%. Sales at furniture, electronics and appliance retailers surged. Receipts from sporting goods, hobby, musical instrument and book stores also increased. Online store sales rebounded 2.2%.
But sales at building materials, equipment and garden supply stores fell, as did those at clothing retailers.
Despite strong retail sales, manufacturing is faltering. A separate report from the Fed showed industrial production fell 0.5% last month, matching the decline in May. This reflected lower production of durable manufactured goods and non-durable consumer goods, and helped lower overall industrial production by 0.2%. Read more
Industrial production is one of many indicators tracked by the National Bureau of Economic Research, the official arbiter of recessions in the United States.
“It’s not often that industrial production gets the call for recession wrong, although there was a considerable drop in factory output from late 2014 to early 2016, which was blamed on the falling oil prices, and the manufacturing recession has not spread to the broader economy,” said Christopher Rupkey, chief economist at FWDBONDS in New York.
There was, however, encouraging news on inflation. Import prices rose moderately in June as the cost of goods excluding petroleum products fell 0.5%, according to a third report from the Labor Department. A strong dollar, stimulated by rising US interest rates, dampens imported inflationary pressures. Read more
Consumers tempered their inflation expectations in July, according to a fourth report from the University of Michigan. Inflation reports led markets to reverse their expectation of a one percentage point rate hike at the July 26-27 Fed policy meeting. Read more
Stocks on Wall Street were trading higher. The dollar fell against a basket of currencies. US Treasury prices rose.
Excluding automobiles, gasoline, building materials and food services, retail sales rose 0.8% in June. Data for May has been revised down to show these so-called core retail sales fell 0.3% instead of remaining unchanged as previously reported.
Core retail sales correspond most closely to the consumer spending component of gross domestic product. Despite June’s rise, inflation-adjusted core retail sales were weaker, implying that consumer spending slowed or even fell last quarter. But with spending returning to services rather than goods, most economists expect moderate spending growth rather than contraction.
GDP estimates for the second quarter range from an annualized rate of decline as low as 1.9% to a growth rate as high as 1.0%. The economy contracted at a rate of 1.6% in the first quarter due to a record trade deficit.
With a labor market generating jobs at a healthy pace and 11.3 million vacancies at the end of May, a second straight quarterly drop in GDP would not necessarily mean the economy was in recession. Excess inventories would likely explain much of any drop in GDP in the last quarter.
A fifth Commerce Department report showed business inventories rose 1.4% in May. Read more .
“We expect the economy to experience a recession towards the end of the year,” said Greg Daco, chief economist at EY-Parthenon in New York.
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Reporting by Lucia Mutikani; Editing by Nick Zieminski and Paul Simao
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