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Cash-flush Americans increase US retail sales; shortages depress car purchases

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  • Retail sales up 0.6% in June; May revised lower
  • Core store sales up 1.1%; May adjusted downwards
  • Consumer confidence ebbs at the beginning of July

WASHINGTON, July 16 (Reuters) – US retail sales rose unexpectedly in June as demand for goods remained strong even as spending shifts to services, supporting expectations that economic growth accelerated in the second quarter.

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The recovery in sales reported by the Commerce Department on Friday was despite motor vehicle purchases falling for the second straight month due to a lack of supply due to a global semiconductor shortage. Sales were also flattered by higher prices due to supply constraints as COVID-19 vaccinations, low interest rates and massive fiscal stimulus fueled demand.
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“The growing pains of the reopening are on the supply side,” said Chris Low, chief economist at FHN Financial in New York. “Inflation reports earlier this week confirm that businesses are still struggling to meet this demand, but another month of high retail spending should give businesses confidence that consumer demand will not slow down anytime soon.”

Retail sales rose 0.6% last month. May data was revised downwards to show sales fell 1.7% instead of 1.3% as previously reported. Economists polled by Reuters had forecast retail sales to fall 0.4% in June.

Sales were up 18.0% compared to June last year and are now 18.0% above pre-pandemic levels. Retail sales mainly comprise the goods component of consumer spending, while services such as healthcare, education, travel and hotel accommodation make up the remainder. Restaurants and bars are the only service category in the retail sales report.

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Demand shifted to goods such as electronics and motor vehicles during the pandemic as millions of people worked from home, took online classes and avoided public transport. Spending is now turning back to services such as travel and entertainment.

While concerns about inflation hurt consumer confidence this month, spending is likely to remain supported by record savings and rising wealth. The University of Michigan consumer confidence index fell to 80.8 at the beginning of this month from 85.5 in June. The survey’s inflation expectations for the next 12 months shot up from 4.2% in June to 4.8%. read more

The government reported this week that consumer prices rose the most in 13 years in June, while producer prices rose. read more

“Consumers have cash, and their credit card usage and debt burden have gone down,” said Scott Hoyt, a senior economist at Moody’s Analytics in West Chester, Pennsylvania. “Lack of available cash or credit to spend is as small a constraint on spending as it ever has been. Combined with massive forced savings, wealth is likely higher than it would have been without the pandemic.”

Households have accumulated at least $2.5 trillion in additional savings during the pandemic. From this month through December, some households will receive income under the expanded Child Tax Credit program, which should help middle and low-income households maintain spending.

Customers visit Macy's flagship store in New York City, New York, US, May 20, 2021. REUTERS/Eduardo Munoz
Customers visit Macy’s flagship store in New York City, New York, US, May 20, 2021. REUTERS/Eduardo Munoz

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Shares on Wall Street were lower. The dollar gained against a basket of currencies. US Treasury yields rose.

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Receipts at car dealerships were down 2.0% after falling 4.6% in May. But sales in clothing stores rose 2.6%, probably because people who ventured outside were clearing out their wardrobes. Sales at petrol stations also increased as a result of increased mobility and higher petrol prices.

Consumers spent more in restaurants and bars, leading to a 2.3% increase in receipts. Sales at restaurants and bars increased by 40.2% compared to June 2020. Receipts at food and beverage stores increased by 0.6%.

Online retail sales were up 1.2%, a modest increase given Amazon’s Prime Day, which was followed by other retailers. Sales at electronics and appliance stores increased by 3.3%.

But receipts from furniture stores fell by 3.6%. Turnover at sporting goods, hobby, musical instruments and book stores fell by 1.7%. Turnover at building materials stores fell by 1.6%.

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“Last summer, parents tried to get their hands on basketball hoops and trampolines and spend more time in the yard or redecorating the house,” said Tim Quinlan, senior economist at Wells Fargo in Charlotte, North Carolina. “This summer, the kids are going back to camp or the family is ready to hit the road.”

Excluding autos, gasoline, building materials and food services, retail sales increased 1.1% last month, after a revised downwards decline of 1.4% in May. These so-called core retail sales correspond most closely to the consumer spending component of gross domestic product. They were previously estimated to have fallen by 0.7% in May.

“As we head into the school season, we expect record sales as families buy electronics, shoes, and backpacks this year to learn them in person,” said Matthew Shay, president of the National Retail Federation.

Despite the downward revision of core retail sales in May, economists remained steadfast in their belief that consumer spending, which accounts for more than two-thirds of US economic activity, posted double-digit growth in the second quarter. Consumer spending grew 11.4% year-on-year in the first quarter.

Gross domestic product growth estimates for this quarter are around 9%, which would accelerate from the rate of 6.4% in the first quarter. Economists believe the economy can grow at least 7% this year. That would be the fastest growth since 1984. The economy shrank by 3.5% in 2020, the worst performance in 74 years.

Reporting by Lucia Mutikani; Editing by Dan Burns and Andrea Ricci

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Our standards: The Thomson Reuters Trust Principles.

The post Cash-flush Americans increase US retail sales; shortages depress car purchases appeared first on Notesradar.

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