Consumers increased their spending from May to June, underscoring their resilience despite higher prices at the gas pump and in grocery store aisles and allaying fears that the economy was on the verge of a recession.
U.S. retail sales rose 1% in June from a revised decline of 0.1% in May, the Commerce Department said Friday.
The figures are not adjusted for inflation and therefore largely reflect higher prices, especially for gas. But they also show that consumers are still providing crucial support to the economy and spending on discretionary items such as furniture, restaurant meals and sporting goods.
At the same time, last month’s spending hike is modest enough that it probably doesn’t encourage the Federal Reserve to raise interest rates even more aggressively. Stock prices rose after the report was released.
“People have not bowed to the Ukraine shock and subsequent spike in food and energy prices,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics. “Instead, they depleted a small portion of their pandemic savings to maintain discretionary spending.”
Kathy Bostjancic, chief U.S. economist at Oxford Economics, said that excluding inflation, retail sales still rose about 0.3% in June, compared with a 0.4% contraction in may. It expects the economy to grow at a weak 0.5% annual rate in the April-June quarter, after contracting in the first three months of the year.
The report showed consumers’ continued appetite for non-essentials such as gadgets and furniture. In fact, furniture store sales increased 1.4%, while consumer electronics store sales increased 0.4%. Online sales picked up again, posting a 2.2% increase. Restaurant activity increased by 1%. But department stores took a hit, posting a 2.6% decline.
These solid figures bode well for the start of the school year, the second largest sales period behind the winter holidays. Mastercard SpendingPulse, which tracks spending on all payment methods including cash, projects back-to-school spending will increase 7.5% from July 14 to September 5 compared to the prior year period, when sales had increased by 11%.
But spending is volatile. The latest round of retail revenue reports released in May showed some slowing in spending, particularly among lower-income shoppers. RH, a high-end furniture chain, cut its sales outlook for the year last month, indicating deteriorating macroeconomic conditions. He cited higher mortgage rates, which are slowing sales of luxury homes, indicating that even the wealthiest buyers are pulling back.
Nonetheless, the strong overall spending came even as buyers faced high prices across the board. US inflation hit a new four-decade high in June on rising gas, food and rent prices, squeezed household budgets and pressure on the Fed to it is raising rates aggressively – trends that increase the risk of recession.
The government’s consumer price index climbed 9.1% in June from a year ago, the largest annual increase since 1981, with almost half the increase due to higher prices. energy costs. The year-on-year jump in consumer prices last month followed an 8.6% annual jump in May. From May to June, prices rose 1.3%, after rising 1% from April to May.
Some economists believe that inflation could peak in the short term. Gas prices, for example, have soared from the $5 a gallon hit in mid-June to a national average of $4.57 on Thursday — still much higher than a year ago.
Arie Kotler, chairman, president and CEO of Arko Corp., one of the largest convenience store operators in the United States, believes that if gas prices continue to fall, “people will have more ‘money in pocket to spend inside the store’. The chain, located primarily in rural areas and small towns, continues to offer deals on coffee and food such as $1.99 for a slice of pizza.
Accelerating inflation is also a big problem for the Fed. The central bank is already embroiled in the fastest round of interest rate hikes in three decades, which it hopes will bring inflation under control by reducing consumer and business borrowing and spending.
The retail sales report covers about a third of overall consumer spending and does not include services, such as haircuts, hotel stays and airline tickets.
