The Commerce Department reports that consumer spending for the month of July was higher than expected.
Key Details
- The U.S. Department of Commerce released its Advance Monthly Sales for Retail and Food Services report on Tuesday for the month of July.
- Retail sales increased by 0.7% last month, exceeding the Dow Jones estimate of 0.4%, while non-auto spending increased by 1%.
- The increase was boosted by a 1.9% increase in online spending, a 1.5% increase in sporting goods spending, and a 1.4% increase in food and drink service sales—while furniture sales (1.8%) and appliances (1.3%) declined.
- Gas sales also saw a notable increase of 0.4% despite ongoing increases in gas prices across the country.
- The Bureau of Labor Statistics also reports a 0.4% increase in import prices, due largely to increased fuel prices.
Why It’s News
Tuesday’s report shows the best monthly improvement for retail sales since January and marks another note of optimism for the economy as analysts predict that a soft landing is more likely than not. A stronger-than-expected retail report is a good indication that the economy is continuing to prosper despite the Federal Reserve’s plans to hike interest rates.
While July’s yearly inflation rate of 3.2% is higher than the Fed’s desired rate of 2%, interest rates remain at a 22-year high. Analysts are generally optimistic that the economy is resilient enough to avoid sparking a deep recession with widespread unemployment. The national unemployment rate is currently at a record low of 3.5%.
“Despite the additional pressure put on the Fed, Americans’ sustained ability to spend speaks to the strength of the US economy in the face of global economic challenges,” Morgan Stanley portfolio head Mike Loewengart tells CNBC.
The Problem
However, there are reasons to be wary of a possible recession. The Fed’s July hikes suggest that it is more worried about entrenched inflation than other analysts, with Chair Jerome Powell saying that it will consider regular hikes on a monthly basis as it analyzes the data. Investor Michael Burry also appears to be betting that the market is trending negatively.
A recent report from the Empire State Manufacturing Survey shows that the New York region has slumped in the last month, with its rating decreasing 20 points to -19—suggesting that manufacturers are experiencing severe contraction at the moment. The same survey’s index for future business conditions shows improved expectations in the next six months to 19.9, which it expects to spur employment considerably.
“Consumers spent with vigor in July, perhaps with a sense of relief that inflation is fading even in the absence of recession or extensive job losses. Is a soft landing still on the table? It’s certainly possible, but it seems a stretch to conclude that it’s probable,” Plante Moran Financial Advisors CIO Jim Baird tells CNBC.
