A shopper carries bags in San Francisco. On Monday, July 16, the Commerce Department releases U.S. retail sales data for JuneRetail Sales, San Francisco, USA - 03 Jul 2018

Clothing retailers scored big this back-to-school season, fueling hopes that the trend will continue into the vital Christmas trading months.

Spending on clothes jumped 6.7 percent in July and August, compared with the same period a year earlier, new government figures showed. This was the best performance in over 12 years and helped push total sales for the closely watched shopping period up to a 10-year high of 5.4 percent.

“Discretionary retail spending is growing rapidly with rising full-time job growth and higher real income,” Craig Johnson, president of retail consultancy Customer Growth Partners, said.

He added that the figures also showed that after many years of outsized growth in tech, spending is starting to migrate back to apparel, with more of a balanced picture between the two sectors.

The retail sales numbers were released as a well-known survey showed that consumer confidence is continuing to sky-rocket despite a number of risks to economic growth on the horizon.

The University of Michigan’s consumer confidence index jumped to its second highest level since 2004 in September, with respondents particularly confident about the future, largely due to more favorable prospects for jobs and incomes.

Jack Kleinhenz, chief economist at the National Retail Federation, said: “Consumers are still in the driver’s seat. Retail sales remain strong thanks to a solid labor market, accelerating wage growth and consumer optimism, which helps to power the consumer spending gains we are seeing. Clearly, household spending is resilient and a contributor to third-quarter GDP growth.”

However, both the University of Michigan and the NRF cautioned that consumers are nervous about the escalating trade war between the U.S. and China, which could soon result in higher prices for a large number of goods, both essential and discretionary.

According to the University of Michigan, concerns about the negative impact of tariffs on the economy were spontaneously mentioned by nearly one-third of all consumers in the past three months, up from one-in-five in the prior four months.

President Donald Trump has already implemented tariffs on Chinese goods totaling $50 billion and the government has been busy preparing to hit another $200 billion worth of products, many of which are consumer-facing, with additional 25 percent levies.

The situation could get even worse as Trump told reporters aboard Air Force One last week that he has earmarked another $267 billion worth of Chinese imports that he can hit with levies on short notice, if provoked by China.

If Trump plays this hand, it will push the total amount of tariffs up to $517 billion, meaning every single Chinese product coming into the U.S. would be subject to levies, hurting the fashion sector, which is heavily reliant on China.

The strong annual back-to-school retail numbers come despite spending on clothes and accessories dropping 1.7 percent on a monthly basis in August. Combined with a fall in auto sales, it meant that overall retail sales ticked up by just 0.1 percent in last month compared to July. Wall Street had been betting on a 0.4 percent rise.

The slide in apparel spending, however, may not mean that consumers were shopping less in August. Andrew Hunter, U.S. economist at Capital Economics, pointed out that inflation data earlier this week showed that clothing prices fell by a similar amount last month, “implying that spending in real terms was broadly unchanged.”

Upwardly revised retail monthly sales figures for July also likely mean that consumer spending helped drive another strong economic performance in the third quarter despite August’s weaker-than-expected number, after the best growth in almost four years in the second quarter.

 

 

 

 

 

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