Spending at US retailers rose in June for the third month in a row, in a subdued show of resilience from American consumers.
Retail spending, which is adjusted for seasonality but not inflation, rose 0.2% in June, the Commerce Department reported Tuesday. That was a slower pace than the prior month’s revised 0.5% increase and below economists’ expectations of a 0.5% gain, according to Refinitiv.
Furniture sales jumped 1.4% in June from the prior month, while spending at department stores fell by 2.4% during the same period. Excluding sales at gasoline stations and on cars and parts, retail sales rose 0.3% in June from May. From a year earlier, overall retail sales rose 1.5% in June, the second-weakest pace since May 2020.
The figures add to signs that US consumers are still opening up their wallets amid higher interest rates, stubborn inflation and lingering economic uncertainty, though the report mostly showed that retail spending only inched forward.
“Consumers’ spending is suffering from the depletion of excess savings built up during Covid,” wrote Ian Shepherdson and Kieran Clancy of Pantheon Macroeconomics, in an analyst note. “We estimate that the pace at which savings are being run down has slowed to $70B per month in May, from a peak of $90B last summer, and the resumption of student loan repayments from September will deal an additional blow.”
Retail sales feed into broader consumer spending figures that account for about two-thirds of economic output. Consumer spending likely held up in the second quarter, though at a slower pace than in the first three months of the year.
More rate hikes, less spending
Spending figures are heavily influenced by the state of the labor market, which has gradually cooled in recent months. Employers added 209,000 jobs in June, nearly 100,000 positions below May’s stronger-than-expected showing of 306,000 and the lowest monthly gain since a decline in December 2020. If Americans are getting hired and their wages continue to grow, then that will hold up spending. The job market remains robust by historical standards.
The Federal Reserve has been trying to cool the economy to bring down inflation, so the steady slowdown in spending will likely be viewed favorably by officials — as long as it continues. And there are plenty of signs that spending will continue to lose steam.
“While consumers are still spending, they are exercising more discretion as lingering inflation and the Federal Reserve’s tightening cycle take their toll,” wrote Lydia Boussour, senior 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 restart and credit conditions tighten further.”
Fed officials meet later this month to deliberate on their latest monetary policy decision, which is widely expected to be a quarter-point interest rate hike. Officials have made it clear there is more work to do to ensure inflation’s defeat, and it could mean an additional quarter-point hike this year, according to the Fed’s latest economic projections. Some officials have already hinted that getting the second hike out of the way in September would be a good idea.
A persistently strong economy with a still-robust labor market would make officials too uncomfortable. But fortunately for the Fed, US consumers seem to be facing a difficult economic landscape later this year, which might prompt them to cut back dramatically.
The Commerce Department releases its first estimate of second-quarter gross domestic product on July 27.
