Retail sales increased by 0.6% in June, reflecting the broader narrative that underscores the American economy: Strong fundamentals around increasing employment, rising wages and savings will support a robust rebound as growth posts a cyclical peak in the second quarter.
Strong fundamentals around increasing employment, rising wages and savings will support a robust rebound.
Overall growth will continue to support an expansion in the economy through 2023, well above the long-term trend of 1.8%.
While policymakers will let the economy run hot until their goal of full employment near 4% is in sight, it is likely time for the Federal Reserve to begin stepping up its rhetoric around the withdrawal of monetary accommodation later this year or early next year as the expansion takes hold.
The notable part of the retail sales report, released by the Commerce Department on Friday, is not so much the top-line growth of 0.6% but that the decline of 2% in motor vehicles and parts did not drag down overall demand.
Even with limits on the availability of some products, overall demand remains robust. The shortage of semiconductors, for example, has limited the availability of autos — this economist purchased an auto in March but it is still on the dock in Germany, awaiting shipment. The broader picture, though, is quite strong. Sales excluding autos rose by 1.3% on the month, sales excluding autos and gasoline increased by 1.1% and the control group that feeds into the estimate of gross domestic product was up by 1.1%.
On a three-month average annualized pace, overall retail sales continued to decelerate from the peak earlier this year to 27%, with the control group advancing at a 14.1% pace. We are quite comfortable with our forecast of 7% growth in GDP for the year, and 9.2% for the second quarter.
The detail inside the report was also quite strong, with demand for electronics advancing by 3.3%, clothing by 2.6%, general merchandise by 1.9%, department stores by 5.4% — all clear signs of a robust back-to-school shopping season.
Spending at eating and drinking establishments was up by 2.3% and the proxy of e-commerce advanced by 1.2%. Miscellaneous spending was up by 3.4%, health and personal care rose by 1.65% and outlays at gasoline stations were up by 2.5%.
Spending on furniture was down by 3.6% and building materials fell by 1.6%, which is reflective of rising costs in construction and housing-related items. Spending on sporting goods items declined by 1.7%.
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