In July, retail sales in the US jumped by 0.5%. This uptick is a good indicator of increasing consumer spending, which is critical for our economic comeback. Consumer spending accounts for roughly 70% of our economic output. This increase is great news because it shows that the economic future is changing! The improvement in consumer sentiment, combined with a low unemployment rate, suggests that Americans are more confident in their financial stability.
On a year-over-year basis, consumer prices increased by 3% in July. Despite that, retail sales saw record-breaking growth. When adjusted for inflation, that means retail sales were up 0.3% after taking into account the price jump. This out-of-date data will come as a huge relief. Just months ago, worries over President Donald Trump’s trade war had sunk consumer sentiment to an almost two-year low last spring.
Spending patterns varied across different sectors. Specifically, spending at car dealerships increased 1.6% and furniture stores 1.4%. In contrast, home improvement stores and electronics & appliance retailers fell by 1% and 0.6%, respectively. Moreover, spending at full-service restaurants and bars fell by 0.4%, perhaps an early indication of shifting consumer preferences in discretionary spending.
Positive results were seen in online sales, up 0.8% in July. Excluding food and gas, the Fed’s control group of retail sales rose 0.5%. This increase was much higher than economists’ predictions of a 0.4% increase. This measure is thought to be a more stable and reliable indicator of retail health.
Chris Zaccarelli, chief investment officer at Northlight Asset Management, commented on the situation, stating, “As long as consumer spending holds up and companies are able to retain workers because of that robust spending, the flywheel can continue to spin, pushing corporate profits and stock prices higher.”
One thing is for sure, American consumers are increasingly growing more confident about their financial prospects in today’s economy. This optimism bodes well for continued strong growth in retail sales. The strong performance of the consumers is buoyed by a low unemployment rate, maybe optimism that lets more people join the spending party.