(Bloomberg)—U.S. retail sales powered ahead in June, with gains across most categories and beating economists’ expectations. This indicates vibrant consumption buoyed second-quarter growth before an anticipated Federal Reserve interest-rate cut later this month.
Online sales were an especially bright spot in the reported retail sales numbers. Online shopping has become the second-biggest chunk of the $520 billion U.S. retail market, after overtaking grocery stores and restaurants in June. In fact, 11 of 13 major retail categories increased sales, led by the increase in nonstore sales, which include online sales and other sales that don’t take place in stores such as via call centers and catalogs.
Spending at nonstore retailers, which includes online retailers such as Amazon.com Inc., rose 1.7% last month and drove the overall increase in sales, according to the Commerce Department. Nonstore sales accounted for 12.5% of the national retail spend in June, ahead of the 12.4% going to grocery stores, and 12.41% at restaurants and bars.
June marked the first time nonstore retailers had grabbed the No. 2 ranking among the 13 categories that the Commerce data is broken into. Vehicles and auto parts stores continued to account for the biggest chunk of U.S. spending, about one dollar in five.
After seasonal adjustment, Americans spent $64.7 billion at nonstore retailers in June. The category contributed about half of the overall 0.4% rise in retail sales.
Sales in the “control group” subset, which excludes food services, car dealers, building-materials stores and gasoline stations, increased 0.7%, also exceeding projections. In the second quarter, control group sales used to calculate growth domestic product jumped an annualized 7.5%, the strongest quarterly performance since the final three months of 2005. Some analysts view the measure as a more accurate gauge of consumer demand.
The rebound underscores Fed Chairman Jerome Powell’s view that consumer spending and finances remain healthy amid a tight labor market that’s been supporting the expansion. Strength at retailers may also complicate the debate for policy makers as they gather July 30-31 to chart their course amid growing headwinds from slowing global growth to trade tensions.
The retail sales gain “feeds into the narrative we’ve been seeing which is consumer strength continuing to support the economy with a strong labor market and wage growth,” said Scott Brown, chief economist at Raymond James Financial Inc. “It’s consistent with consumer spending supporting the overall economy, but part of the strength we’re seeing in the second-quarter numbers is payback because the first quarter was so soft.”
Powell in congressional testimony last week left it all but certain that the Fed is poised to cut rates for the first time in a decade. Still, he told lawmakers that consumer spending has reliably driven growth and rebounded to a solid pace after first-quarter weakness.
The initial reading of second-quarter gross domestic product is due July 26. A survey this month showed growth probably slowed to a 1.8% annualized pace from 3.1%, though consumption was seen picking up.
Broad strength
Sales at automobile dealers climbed 0.7%, the same pace as the prior month. Industry data from Wards Automotive Group previously showed unit sales unchanged in June after a May rebound. Electronics and appliance stores and gasoline stations both fell.
Filling-station receipts decreased 2.8%, the most since December, as gasoline prices fell a second month. The figures aren’t adjusted for price changes, so lower retail sales in the category could reflect changes in gasoline costs, sales, or both.
A separate Labor Department report Tuesday showed import prices decreased 0.9% in June from the prior month, as export prices fell 0.7%.
Additionally:
- Excluding autos and gasoline, retail sales increased 0.7%.
- Sales at department stores fell 1.1% after a 0.6% decline the prior month.
- Estimates in the Bloomberg survey for retail sales ranged from a decline of 0.2% to a gain of 0.5%.
- The retail sales data don’t capture all household purchases and tend to be volatile. Personal-spending figures, which also span services, will offer a fuller picture of U.S. consumption in data due at the end of the month.
Moody’s take
The better than expected increase in June retail sales of 0.4% over a revised 0.4% gain in May demonstrates that consumer spending is still on the uptick and the fear of a slowdown in consumer confidence is premature, Moody’s vice president Mickey Chadha stated.
“On a year-over-year basis retail sales in June increased 3.3% in June led by ecommerce, health & personal care and motor vehicles and parts sales growth of 13.4%, 5.5% and 4.1% respectively. Laggards continue to be department stores, sporting goods, hobby stores and electronics stores with sales declines of 5.2%, 3.3% and 5.0% year over year respectively,” he said.
“We believe retail sales growth for 2019 will be over 4.0% led by ecommerce players like Amazon (No. 1 in the 2019 Internet Retailer Top 1000), off-price retailers like TJX (No. 149) and Ross (Stores Inc.) value and convenience oriented retailers like Dollar General and Dollar Tree (No. 218), and discounters and warehouse clubs like Walmart Inc. (No. 3) and Target Corp. (No. 16). Continued strong macroeconomic trends are also expected to remain in place with low unemployment and wage growth continuing to bolster retail sales,” Chadha said.