Consumers pincreased spending from May to June, underscoring their resilience despite painfully high prices at the gas pump and in grocery store aisles and allaying fears that the economy is on the verge of a recession.
U.S. retail sales rose 1% in June, from a revised decline of 0.1% in May, the Commerce Department said Friday.
The figures are not adjusted for inflation and therefore largely reflect higher prices, especially for gas. But they also show that consumers are still providing crucial support to the economy and spending on discretionary items such as furniture, restaurant meals and sporting goods.
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At the same time, the increase in spending last month is modest enough not to encourage the Federal Reserve to raise interest rates even more aggressively. Stock prices rose after the report was released.
“People have not bowed to the Ukraine shock and subsequent spike in food and energy prices,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics. “Instead, they depleted a small portion of their pandemic savings to maintain discretionary spending.”
On average, consumers still have significant savings backed by pandemic-era government relief checks and solid gains in hiring and compensation. JPMorgan executives said Thursday that their customers were still pulling out their credit and debit cards at a brisk pace.
Kathy Bostjancic, chief U.S. economist at Oxford Economics, said that excluding inflation, retail sales still rose about 0.3% in June, compared with a 0.4% contraction in may. It expects the economy to grow at a weak 0.5% annual rate in the April-June quarter, after contracting in the first three months of the year.
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The report showed consumers’ continued appetite for non-essential products like gadgets and furniture. In fact, sales at furniture stores rose 1.4%, while consumer electronics stores rose 0.4%. Online sales picked up again, posting a 2.2% increase. Restaurant activity increased by 1%. But department stores took a hit, posting a 2.6% decline.
The solid numbers are a bold move for the back-to-school shopping season, the second-biggest sales period behind the winter holidays. Mastercard SpendingPulse, which tracks spending on all payment methods including cash, projects back-to-school spending will increase 7.5% from July 14 to September 5 compared to the period last year when sales had increased by 11%.
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But spending is volatile. The latest round of retail revenue reports released in May showed some slowing in spending, particularly among lower-income shoppers. RH, a high-end furniture chain, cut its sales outlook for the year last month, pointing to deteriorating macroeconomic conditions. He cited higher mortgage rates, which are slowing sales of luxury homes, indicating that even the wealthiest buyers are pulling back.
Nonetheless, the strong overall spending came even as buyers faced high prices across the board. US inflation hit a new four-decade high in June on rising gas, food and rent prices, squeezed household budgets and pressure on the Fed to it is raising rates aggressively – trends that increase the risk of recession.