US retail sales data boosts Q3 economic outlook

WASHINGTON: US retail sales rose more than expected in July as households boosted purchases of motor vehicles and clothing, suggesting the economy remained strong early in the third quarter. Other data on Wednesday showed manufacturing output rising steadily last month and worker productivity growing at its fastest pace in more than three years in the second quarter, though a drop in labour costs pointed to moderate wage inflation.
Strong domestic demand supports expectations the Federal Reserve will raise interest rates in September for the third time this year, despite volatility in emerging markets that was sparked by an economic and political crisis in Turkey.
“The economy appears to be very well-positioned to continue to grow,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors in Kalamazoo, Michigan. “The persistently optimistic consumer sector is doing its part to keep the growth engine going, and retailers are benefiting.”
The Commerce Department said retail sales increased 0.5 per cent last month. But data for June was revised lower to show sales gaining 0.2 per cent instead of the previously reported 0.5 per cent rise. Economists polled by Reuters had forecast retail sales nudging up 0.1 per cent in July. Retail sales in July increased 6.4 per cent from a year ago.
Excluding automobiles, gasoline, building materials and food services, retail sales advanced 0.5 per cent last month after a downwardly revised 0.1 per cent dip in June. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.
Core retail sales were previously reported to have been unchanged in June. Consumer spending is being supported by a tightening labour market, which is gradually pushing up wages. Tax cuts and higher savings are also underpinning consumption.
July’s increase in core retail sales suggested the economy started the third quarter on a solid footing after logging its best performance in nearly four years in the second quarter.
GDP surged at a 4.1 per cent annualised rate in the April-June period, almost double the 2.2 per cent pace in the first quarter. While the economy is unlikely to repeat the second quarter’s robust performance, growth in the July-September period is expected to top a 3.0 per cent rate.
The Fed increased borrowing costs in June and forecast two more interest rate hikes by December.
The dollar was trading near a 13-month high against a basket of currencies and prices for US Treasuries rose on Wednesday. Stocks on Wall Street fell sharply as the currency crisis in Turkey and ongoing concerns about trade policy hurt sentiment. — Reuters