Cash-strapped Americans are increasing US retail sales; shortages depress auto purchases

WASHINGTON, July 16 (Reuters) – Retail sales in the United States rose unexpectedly in June as demand for goods remained strong even as spending returned to services, supporting expectations of accelerating economic growth in the second trimester.

The sales rebound reported by the Commerce Department on Friday came despite the decline in motor vehicle purchases for a second consecutive month due to a lack of supply caused by a global semiconductor shortage. Sales were also flattered by higher prices resulting from supply constraints such as COVID-19 vaccinations, low interest rates and massive demand for fiscal stimulus fuel.

“The growing pains of the reopening are on the supply side,” said Chris Low, chief economist at FHN Financial in New York City. “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 won’t slow anytime soon. . “

Retail sales rose 0.6% last month. Data for May has been revised down to show sales down 1.7% instead of 1.3% as previously reported. Economists polled by Reuters predicted retail sales would drop 0.4% in June.

Sales rose 18.0% from June last year and are now 18.0% above their pre-pandemic level. Retail sales mainly capture the goods component of consumer spending, with services such as health care, education, travel and hotel accommodation making up the remainder. Restaurants and bars are the only category of services in the retail sales report.

Demand shifted to goods like electronics and motor vehicles during the pandemic as millions of people worked from home, took online classes and avoided public transportation. Spending now goes to services like travel and entertainment.

Although inflation concerns have hurt consumer confidence this month, spending is expected to remain supported by record savings and rising wealth. The University of Michigan consumer confidence index fell to 80.8 earlier this month from 85.5 in June. The survey’s inflation expectations over the next 12 months climbed to 4.8% from 4.2% in June. Read more

The government reported this week that consumer prices rose the most in 13 years in June, as producer prices accelerated. Read more

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

Households accumulated at least $ 2.5 trillion in excess savings during the pandemic. From this month until December, some households will receive income under the Expanded Child Tax Credit program, which is expected to help middle and low-income households maintain their spending.

Wall Street stocks were trading lower. The dollar appreciated against a basket of currencies. Yields on the US Treasury rose.

BIG WINNINGS

Receipts at car dealerships fell 2.0% after declining 4.6% in May. But clothing store sales rose 2.6%, likely because people venturing outside their homes refreshed their wardrobes. Sales at gasoline stations also increased, reflecting increased mobility and higher gasoline prices.

Consumers increased their spending in restaurants and bars, leading to a 2.3% increase in revenue. Sales at restaurants and bars increased 40.2% from June 2020. Receipts at food and beverage stores increased 0.6%.

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

But furniture store receipts fell 3.6%. Sales at sporting goods, hobby, musical instrument and book stores fell 1.7%. Sales at building supply stores fell 1.6%.

“Last summer, parents were trying to get their hands on basketball hoops and trampolines, and spending more time working in the yard or fixing the house,” Tim Quinlan, senior economist at Wells Fargo told Charlotte, North Carolina. “This summer, the kids are heading back to camp where the family is ready to hit the road.”

Excluding autos, gasoline, building materials and food services, retail sales rose 1.1% last month after declining 1.4% in May. These so-called basic retail sales correspond most closely to the consumer expenditure component of gross domestic product. They were previously estimated to have fallen 0.7% in May.

“As the new school year approaches, we expect record sales as families shop for electronics, shoes and backpacks for in-person learning this year,” said Matthew Shay, president of the National Retail Federation.

Despite the downward revision to core retail sales in May, economists remained confident that consumer spending, which accounts for more than two-thirds of US economic activity, grew double-digit in the second quarter. Consumer spending grew at an annualized rate of 11.4% in the first quarter.

Gross domestic product growth estimates for this quarter are around 9%, which would represent an acceleration from the 6.4% pace recorded in the first quarter. Economists estimate that the economy could grow at least 7% this year. It would be the fastest growing since 1984. The economy contracted 3.5% in 2020, its worst performance in 74 years.

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

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