(Washington) U.S. residents increased their spending at retail stores in July, easing concerns that the economy is weakening under pressure from higher prices and high interest rates.
The Commerce Department said Thursday that retail sales jumped 1% from June to July, the biggest such increase since January 2023, after falling slightly the previous month.
Car dealerships, electronics and appliance stores and grocery stores all reported strong sales increases.
Retail sales data for July assured investors that the U.S. economy, while slowing slightly under pressure from high interest rates, remains resilient. It showed that U.S. consumers, the main driver of economic growth, are still willing to spend.
The prospect of a still-growing economy is likely to be highlighted by Vice President Kamala Harris’ presidential campaign, which is set to announce measures Friday to ban “price gouging” on food products.
On Wednesday, his opponent, former President Donald Trump, criticized the Biden-Harris administration’s economic record, although he overinflated increases in food and mortgage payments.
Other economic data released Thursday was mostly positive, including a report on initial jobless claims. The figures show that companies are retaining employees and not increasing layoffs.
As U.S. residents spend more, economists at Morgan Stanley raised their growth forecast for the July-September quarter to an annual rate of 2.3%, from a previous estimate of 2.1%. The economy expanded at a healthy 2.8% in the April-June quarter.
Overall, the latest data are consistent with an economy heading toward a “soft landing,” in which the U.S. Federal Reserve (Fed) has raised interest rates enough to cool inflation, but not enough to cause a recession.
“The continued resilience of consumer spending should ease recession fears and reduce the odds that markets have placed on a larger (half-point) rate cut” at the Fed’s mid-September meeting, said Michael Pearce, an economist at Oxford Economics.
Instead, economists increasingly expect the Fed to start with a modest quarter-point cut in its key interest rate, which affects many consumer and business loans, next month.
Diversified increases
Without accounting for inflation, real sales increased 0.8% in July. Excluding gas station sales, which don’t reflect Americans’ spending urge, retail sales actually increased 1%.
Auto sales jumped 3.6%, the biggest gain since January 2023. That was a rebound from the previous month, when a cyberattack involving many dealerships slowed sales.
Sales at electronics and appliance stores rose 1.6%. Hardware and garden stores rose 0.9%. Restaurant sales rose 0.3%, a sign that Americans are still willing to make non-essential purchases.
Slowing inflation could give households a much-needed boost. Consumer prices rose just 2.9% in July from a year earlier, the government said Wednesday. That was the weakest year-over-year reading since March 2021. And core inflation, which strips out volatile food and energy costs, fell for the fourth straight month.