Retail sales last month rose less than expected
US Retail Performance Shows Mixed Signals in June
Retail sales last month rose less than analysts had anticipated, revealing a more cautious consumer landscape despite several positive catalysts. The Commerce Department reported Thursday that retail sales increased 0.2% in June compared to the previous month, marking a notable decline from May’s revised 1% gain. This figure fell short of the 0.3% increase that economists surveyed by FactSet had projected. While the World Cup tournament attracted international visitors and major online shopping events drove traffic, overall spending momentum proved weaker than hoped.
Underlying Economic Indicators Point to Steady Growth
Retail sales last month rose with important caveats regarding how the data is calculated. The figures account for seasonal variations but do not adjust for inflation, which means rising prices can influence the numbers. Economists noted that the World Cup and Amazon’s Prime Day promotion provided spending boosts, yet declining fuel costs negatively impacted the government’s retail calculations since those figures remain unadjusted for inflation. When excluding gas station transactions, June spending demonstrated a more robust 0.7% increase.
A closely watched measure that removes volatile sectors like building materials and gasoline showed retail sales last month rose 0.5% in June, down from May’s 0.8% but above the 0.4% forecast. This indicates that fundamental consumer demand remained active throughout the month. For Federal Reserve officials who determine interest rates, strong economic expansion combined with higher inflation suggests policymakers will likely maintain their current stance rather than cutting rates in the near term.
To initiate rate reductions, Fed decision-makers would need to observe inflation approaching their 2% annual objective or witness clearer signs of economic weakening. “Despite challenges, consumers are still spending and the labor market shows no signs of cracking,” Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management, explained in commentary released Thursday. “This type of data won’t move the Fed’s needle either way, but it underscores the ongoing resilience of the US economy.” Consumer spending, representing roughly two-thirds of American economic activity, has maintained stability this year despite elevated inflation and notably weak consumer confidence readings.
“A renewed slowdown in spending, however, beckons over the second half of this year,” Oliver Allen, senior US economist at Pantheon Macroeconomics, cautioned in an analyst note Thursday. “The lift to cashflow from tax refunds now has faded, leaving consumers far more exposed to the real income shock from the jump in gas prices.”
Thursday’s comprehensive report revealed that sales expanded across most categories, with online retailers leading the gains at 1.9%—likely driven by Prime Day activity—alongside car dealerships, which also posted 1.9% growth. Gas stations experienced the steepest decline at 5.3%, while health and personal care establishments fell 0.8%. Restaurant and bar revenue increased marginally by 0.1% despite the World Cup visitor surge.
Department store sales climbed just 0.1% in June, reflecting both minimal layoffs and a stable employment picture. However, lower-income families are experiencing greater pressure from rising prices and accumulating debt compared to wealthier households benefiting from stock market strength. Economists characterize this disparity as a K-shaped economic recovery.
The American consumer’s continued willingness to spend offers encouragement for broader economic expansion. The Federal Reserve Bank of Atlanta projects that gross domestic product exceeded 1% during the second quarter. Nevertheless, uncertainty remains regarding whether shoppers will maintain their spending habits, particularly if Middle Eastern tensions continue preventing energy costs from returning to pre-conflict levels.
