Strong US retail sales lift second-quarter GDP estimates

WASHINGTON: US retail sales rose solidly in June as households boosted purchases of automobiles and a range of other goods, cementing expectations for robust economic growth in the second quarter.
Signs of a strengthening economy, together with a tightening labour market and firming inflation, likely will keep the Federal Reserve on track to continue raising interest rates this year.
Fed Chairman Jerome Powell offered an upbeat assessment of the economy last Friday, telling lawmakers that “over the first half of this year, overall economic activity appears to have expanded at a solid pace.” The US central bank raised interest rates in June for the second time this year and has forecast two more rate hikes by the end of 2018.
“This puts the economy in a very, very good position as it starts its 10th year of forward movement in July,” said Chris Rupkey, chief economist at MUFG in New York. “This strengthening economy gives the Federal Reserve the green light to raise rates a third time this year at their September meeting.”
The Commerce Department said on Monday retail sales increased 0.5 per cent last month. Data for May was revised to show sales rising 1.3 per cent, the largest since September 2017, instead of the previously reported 0.8 per cent gain.
Economists had forecast retail sales rising 0.5 per cent in June. Retail sales in June gained 6.6 per cent from a year ago.
Excluding automobiles, gasoline, building materials and food services, retail sales were unchanged last month after an upwardly revised 0.8 per cent increase in May.
These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product and were previously reported to have risen 0.5 per cent in May.
Given the upward revision to May’s data, the unchanged reading in core retail sales last month did not change views consumer spending accelerated in the second quarter.
Consumer spending, which accounts for more than two-thirds of US economic activity, braked in the January-March period, growing at its slowest pace in nearly five years.
The dollar slipped against a basket of currencies. Stocks on Wall Street were lower. US Treasuries fell, with the yield on the interest rate-sensitive two-year note rising to a near 10-year high.
In addition to the solid retail sales data, a sharp narrowing of the trade deficit in April and May has also bolstered expectations of a strong GDP reading for the second quarter. Second-quarter growth expectations were supported by another report from the Commerce Department on Monday showing business inventories increased 0.4 per cent in May. In June, auto sales rose 0.9 per cent after advancing 0.8 per cent in May. — Reuters