WASHINGTON- US retail sales rebounded strongly in June as Americans spent more on gasoline and other goods amid soaring inflation, which could allay fears of an imminent recession but not change the view that economic growth in the second quarter was tepid.
The economic picture is, however, becoming increasingly muddled. Manufacturing production slumped for a second straight month in June, other data showed on Friday, implying softening demand as the Federal Reserve aggressively tightens monetary policy to bring inflation down to its 2 percent target.
The retail sales data followed on the heels of news this week that annual consumer prices surged last month by the most since late 1981. The economy also continued to create jobs at a brisk clip in June. The reports cemented expectations that the US central bank will deliver another 75-basis-point interest rate hike this month.
“Padded by high savings and rising wages, American households are spending nearly as much money as they did earlier, but largely to keep up with higher prices, not to actually buy more stuff,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto.
“That said, today’s report may cool talk of a near-term recession.”
Retail sales rose 1.0 percent last month, the Commerce Department said. Data for May was revised up to show sales falling 0.1 percent instead of 0.3 percent as previously reported. Retail sales increased 8.4 percent on a year-on-year basis and are 18 percent above their pre-pandemic trend.
Economists polled by Reuters had forecast retail sales would increase 0.8 percent, with estimates ranging from as low as a 0.2 percent drop to as high as a 2.2 percent increase. Retail sales are mostly made up of goods, and are not adjusted for inflation. The Fed has hiked its policy rate by 150 basis points since March.
The nearly broad increase in retail sales last month was led by receipts at auto dealerships, which rebounded 0.8 percent after declining 3.0 percent in May amid shortages. Sales at service stations increased 3.6 percent. Gasoline prices surged in June, averaging above $5 per gallon, according to data from motorist advocacy group AAA. Prices at the pump have since declined from last month’s record peaks and were averaging $4.577 per gallon on Friday.
Receipts at bars and restaurants, the only services category in the retail sales report, increased 1.0 percent. There were strong gains in sales at furniture and electronics and appliance retailers. Receipts at sporting goods, hobby, musical instrument and book stores also rose. Online store sales rebounded 2.2 percent.
But sales at building material, garden equipment and supplies stores fell as did those at clothing retailers.
Despite the strength in retail sales, manufacturing is losing steam. A separate report from the Fed showed factory production fell 0.5 percent last month, matching the drop in May.
That reflected declines in the output of long-lasting manufactured goods and nondurable consumer goods, and helped to push overall industrial production down 0.2 percent.
Industrial production is one of the several indicators tracked by the National Bureau of Economic Research, the official arbiter of recessions in the United States.
“It isn’t often that industrial production gets the recession call wrong, although there was a considerable drop in factory output from late 2014 to early 2016, which was blamed on the oil price crash, and the manufacturing recession didn’t spread to the broader economy,” said Christopher Rupkey, chief economist at FWDBONDS in New York.
