Washington, D.C. CNN –
US retail spending rose for the third straight month in June, a muted sign of US consumer resilience.
Retail spending, which is seasonally adjusted but not adjusted for inflation, rose 0.2% in June, the Commerce Department reported on Tuesday. That was a slower pace than the revised 0.5% increase in the previous month and was below economists’ expectations for a 0.5% rise, according to Refinitiv.
Furniture sales rose 1.4% mom in June, while department store spending fell 2.4% over the same period. Excluding sales to gas stations and sales of autos and parts, retail sales rose 0.3% in June from May. Year-on-year, total retail sales rose 1.5% in June, the second-lowest pace since May 2020.
The numbers reinforce signs that US consumers are still opening their wallets despite higher interest rates, stubborn inflation and ongoing economic uncertainty, although most of the report showed retail spending rose only marginally.
“Consumer spending is suffering from the depletion of excess savings accumulated during Covid,” wrote Ian Shepherdson and Kieran Clancy of Pantheon Macroeconomics in an analyst note. “We expect the pace at which savings are being depleted has slowed to $70 billion a month in May from a peak of $90 billion last summer and that the resumption of repayments of student loans starting in September will be an added blow.”
Retail sales feed into broader consumer spending, which accounts for about two-thirds of economic output. Consumer spending is likely to have continued in the second quarter, albeit at a slower pace than in the first three months of the year.
Expenditure figures are heavily influenced by the situation in the labor market, which has gradually cooled off in recent months. Employers added 209,000 jobs in June, nearly 100,000 fewer than expected in May (306,000) and the lowest monthly gain since a December 2020 contraction. If Americans hire and their wages keep rising, it will slow spending. The labor market remains robust in historical comparison.
The Federal Reserve has been trying to cool the economy to bring down inflation, so officials are likely to take a positive view of the steady slowdown in spending — as long as it lasts. And there are many signs that spending will continue to lose momentum.
“While consumers are still spending, they are exercising more discretion as continued inflation and the Federal Reserve’s tightening cycle take their toll,” wrote Lydia Boussour, chief economist at EY-Parthenon, in an analyst note. “With employment and household disposable income growth expected to moderate in the second half of the year, the slowdown in consumer spending will accelerate as the buffer from excess savings shrinks, student loan repayments resume and credit conditions continue to tighten exacerbate.”
Fed officials are meeting later this month to consider their latest monetary policy decision, which is widely expected to see a quarter-point rate hike. Officials have made it clear that more needs to be done to ensure inflation is defeated, and that could mean another quarter-point hike this year, according to the Fed’s latest economic forecasts. Some officials have already suggested that the second rate hike in September would be a good idea.
A sustained strong economy with a still robust job market would cause officials too much unease. But luckily for the Fed, US consumers appear to be facing tough economic conditions later this year that could prompt them to take drastic austerity measures.
The Commerce Department will release its first estimate of second-quarter gross domestic product on July 27.