WASHINGTON: US retail sales unexpectedly increased in June as demand for goods remained strong even as spending is shifting back to services, supporting expectations that economic growth accelerated in the second quarter.
The rebound in sales reported by the Commerce Department yesterday was despite purchases of motor vehicles declining for a second straight month due to a lack of supply caused by a global semiconductor shortage. Sales were also flattered by higher prices resulting from supply constraints as Covid-19 vaccinations, low interest rates and massive fiscal stimulus fuel demand.
“Growing pains from reopening are on the supply side,” said Chris Low, chief economist at FHN Financial in New York. “Inflation reports earlier this week confirm firms are still struggling to keep up with this demand, but another month of high retail spending should give companies confidence that consumer demand is not slowing down anytime soon.”
Retail sales rose 0.6 per cent last month. Data for May was revised down to show sales falling 1.7pc instead of declining 1.3pc as previously reported. Economists polled by Reuters had forecast retail sales dropping 0.4pc in June.
Sales advanced 18.0pc compared to June last year and are now 18.0pc above their pre-pandemic level. Retail sales mostly capture the goods component of consumer spending, with services such as healthcare, education, travel and hotel accommodation making up the remaining portion. Restaurants and bars are the only services category in the retail sales report.
Demand shifted to goods like electronics and motor vehicles during the pandemic as millions of people worked from home, took online classes and avoided public transportation. Spending is now rotating back to services like travel and entertainment.
Though worries about inflation hurt consumer sentiment this month, spending was likely to remain underpinned by record savings and rising wealth. The University of Michigan’s consumer sentiment index fell to 80.8 early this month from 85.5 in June. The survey’s inflation expectations over the next 12 months shot up to 4.8pc from 4.2pc in June.
The government reported this week that consumer prices increased by the most in 13 years in June, while producers prices accelerated.
“Consumers are flush with cash and their credit card utilisation rates and debt burdens have dropped,” said Scott Hoyt, senior economist at Moody’s Analytics in West Chester, Pennsylvania. “Lack of available cash or credit to spend is as small a restraint on spending as it ever is. Combined with massive forced saving, wealth is likely higher than it would have been without the pandemic.”
Households accumulated at least $2.5 trillion in excess savings during the pandemic. Starting this month through December some households will receive income under the expanded Child Tax Credit program, which should help middle- and lower-income households to maintain spending.
