Americans headed out to the shops in force last month to update their summer wardrobes and in turn gave the economy a boost.
Strong sales at clothing retailers and department stores as well as Amazon’s record-breaking Prime Day were among the main factors behind better-than-expected retail spending figures in July.
U.S. retail sales inched up 0.5 percent last month, beating analysts’ predictions for a meager 0.1 percent rise, according to new data from the Department of Commerce released Wednesday.
As well as increased car purchases and restaurant outings in July, a 1.3 percent rise in clothing and accessories stores sales and a 1.2 percent boost in department store spending helped push up the headline number, marking a turnaround for both categories, which declined in June.
A record Amazon Prime Day where shoppers bought more than 100 million products over the 36-hour event also no doubt played its part, with online and mail-order sales up 0.8 percent in July.
The data wasn’t all bright, though, as June’s retail sales were downwardly revised from up 0.5 percent to 0.2 percent and experts were mixed on just how much consumers can boost growth over the next few months.
“We expect this trend to continue through 2018 on the back of a strong economy, with record low unemployment and rising consumer confidence, with total year over retail sales growth for 2018 coming in at the higher end of our current forecast of 3.5 percent-4.5 percent,” said Mickey Chadha, vice president of Moody’s.
In contrast, Andrew Hunter, U.S. economist at Capital Economics, is forecasting real consumption growth to slow to between an annualized rate of 2.5 percent and 3 percent in the third quarter, with overall GDP growth slowing to a similar rate.
“Despite the continued strength of retail sales in July, real consumption growth still looks set for a gradual slowdown in the third quarter, as the boost from the recent tax cuts starts to fade,” he said.
Strong consumer spending was the main reason behind the U.S. economy’s best performance in almost four years in the second quarter thanks to trillion-dollar tax cuts and a strong jobs market, but some economists are concerned about how long this can last as interest rates rise and the trade war shows no sign of abating.
While the Federal Reserve sat on its hands this month, it is widely expected to raise interest rates in September from their current level of 2 percent as it continues to wean consumers off years of financial crisis-induced easy monetary policies.
It has already raised rates seven times since 2015, and Americans will have to brace themselves for several more over the next couple of years, with the central bank expecting rates to hover around 3.4 percent in 2020.
At the same time, the U.S. is gearing up to slap additional 25 percent tariffs on a raft of Chinese imports, many consumer-facing, and has pledged to go even further and target all imports if China further provokes the White House.
Jack Kleinhenz, chief economist at the National Retail Federation, said: “Consumer spending is the backbone of the current economic expansion but the fly in the ointment is uncertainty regarding tariffs. If they escalate, they will no doubt weigh on confidence and household spending.”