US retail sales stable due to lower gasoline prices; resilient consumer spending

People shop for clothes at a Target chain store in Westbury, New York, U.S., May 20, 2021. REUTERS/Shannon Stapleton/File Photo

WASHINGTON, Aug 17 (Reuters) – U.S. retail sales were flat in July as lower gasoline prices weighed on gas station revenues, but consumer spending appeared to recover in July. beginning of the third quarter, which further allayed fears of an economic recession.

However, lower gasoline prices freed up money to buy other goods, including furniture, electronics and appliances, as well as building materials and gardening equipment.

Combined with solid wage gains thanks to a tight labor market and abundant savings, this should help support consumer spending in the months ahead. Wednesday’s fairly strong Commerce Department report will likely keep the Federal Reserve on its aggressive course of monetary policy tightening.

“As consumers feel the brunt of still high prices, they remain resilient,” said Kathy Bostjancic, chief US economist at Oxford Economics in New York. “The combination of a strong labor market and robust consumer spending appears to be keeping the economy out of recessionary territory.”

Last month’s flat retail sales reading followed a downwardly revised 0.8% increase in June. Retail sales in June would have previously advanced by 1.0%. Economists polled by Reuters had forecast sales to rise 0.1%, with estimates ranging from a 0.3% decline to a 0.9% increase. Sales rose 10.3% year-on-year in July.

Retail sales are primarily goods and are not adjusted for inflation. The pullback in gasoline prices from July’s record highs pushed goods prices down 0.5%. That means inflation-adjusted retail sales rose 0.6% last month.

The national average gasoline price fell to around $4.27 a gallon in the last week of July after hitting a record high just above $5.00 in mid-June, the data shows. of the AAA Motorists Advocacy Group. Pump prices averaged $3.943 a gallon on Wednesday.

Sales at gas stations fell 1.8% last month, while revenue at car dealerships fell 1.6%. Excluding gas and motor vehicles, retail sales rose 0.7%.

There were also lower sales at clothing and general merchandise stores, which could reflect steep discounts as retailers try to eliminate excess inventory. Walmart Inc. (WMT.N) said on Tuesday that it had liquidated most of its summer seasonal inventory, but still had work to do to reduce its stock of electronics, household items and clothing. Read more

Target (TGT.N) reported a sharp drop in quarterly earnings on Wednesday as it struggled to lure shoppers with deep discounts on clothes and other goods. Read more

Stocks on Wall Street were trading lower. The dollar appreciated against a basket of currencies. US Treasury prices fell.

UNDERLYING STRENGTH

Online and mail-order retail sales jumped 2.7% in July, likely boosted by Amazon’s Prime Day. Revenue at furniture stores rose 0.2%, while sales at building material and garden equipment retailers rebounded 1.5%. Sales at electronics and appliance stores rose 0.4%.

Sales at hobby and musical instrument stores and bookstores increased slightly. Revenue from bars and restaurants, the only service category in the retail sales report, rose 0.1%.

Excluding automobiles, gasoline, building materials and food services, retail sales rose 0.8% last month after rising 0.7% in June. These so-called core retail sales correspond most closely to the consumer spending component of gross domestic product. The consumer spending profile was also boosted by upward revisions to May data to show core sales rose 0.8% instead of falling 0.3% as previously forecast.

With consumer prices flat in July, inflation-adjusted core retail sales are estimated to have increased by at least 0.5%. Economists say that would put consumer spending, which accounts for more than two-thirds of U.S. economic activity, on track to grow at an annualized rate of around 3% in the third quarter.

“The retail sales report shows more recent momentum for consumers than we expected,” said Daniel Silver, an economist at JPMorgan in New York. “This adds upside risk to our forecast of 1.0% real GDP for the third quarter.”

Consumer spending grew at its slowest pace in two years in the second quarter. The modest rise was offset by weakness in business and government spending as well as residential investment, leading to the second consecutive quarter of GDP contraction.

Although the Fed’s aggressive interest rate hikes to dampen demand and rein in inflation have left the economy vulnerable to a slowdown, solid job growth and industrial production are keeping a recession at bay for the moment. The US central bank has raised its key rate by 225 basis points since March.

The expense is expected to gain popularity in August as parents shop for the new school year. Goldman Sachs estimates that households have about $2.2 trillion in excess savings, which it says would provide an important safety net for spending levels in the event of an economic downturn.

“The combination of excess savings and rapid asset price appreciation during the pandemic has effectively increased the share of households that are able to smooth consumption in the face of a negative economic shock like unemployment, which is the “One of the reasons we expect any recession that might occur in the next few years would most likely be mild,” said Joseph Briggs, an economist at Goldman Sachs in New York.

Reporting by Lucia Mutikani; Editing by Mark Porter, Paul Simao and Jonathan Oatis

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