Retail sales last month rose less than expected

US Retail Sales Last Month Rose Less Than Expected

Retail sales last month rose less than analysts had anticipated, with consumer spending at American retailers coming in weaker than forecast. Despite the World Cup attracting international visitors and major online shopping events driving traffic, retail sales last month rose just 0.2% in June compared to the previous month, according to the Commerce Department’s announcement on Thursday. This marked a sharp decline from May’s revised 1% increase and fell short of the 0.3% growth that economists surveyed by FactSet had predicted.

What Drove Retail Sales Last Month Rise

Retail sales last month rose figures are adjusted for seasonal variations but do not account for inflation. While the World Cup and Amazon’s Prime Day promotional event provided positive momentum for spending, lower gasoline prices actually weighed on the overall retail numbers since these figures remain unadjusted for inflation. When excluding transactions at gas stations, retail sales last month rose showed a more robust 0.7% increase, indicating stronger underlying consumer activity.

A broader measure of retail spending that removes volatile categories like building materials and gasoline also reflected growth. Retail sales last month rose 0.5% in June according to this adjusted metric, down from May’s 0.8% but slightly above the 0.4% expectation. This pattern suggests that underlying consumer demand remained steady throughout the month. For Federal Reserve policymakers who determine interest rates, the combination of solid economic growth and elevated inflation levels means officials are less inclined to reduce rates, preferring to maintain their current strategy of keeping borrowing costs unchanged in the near term.

“Despite challenges, consumers are still spending and the labor market shows no signs of cracking,” wrote Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management, in commentary released Thursday.

To initiate rate cuts, Fed decision-makers would need to observe inflation moderating toward their 2% annual target or witness clearer signals of economic weakening. Zentner noted that while this type of data won’t significantly shift the Fed’s position, it highlights the continued strength of the American economy. Consumer spending, representing approximately two-thirds of the US economic output, has maintained its trajectory throughout the year despite higher inflation rates and notably weak consumer confidence readings.

Thursday’s comprehensive report revealed that retail sales last month rose across the majority of categories. Online retailers experienced the strongest growth at 1.9%, likely benefiting from Prime Day promotions, while car dealerships also posted a 1.9% increase. Conversely, retail sales last month rose saw declines at gas stations, which plummeted 5.3%, and health and personal care establishments, which dropped 0.8%. Restaurant and bar spending increased marginally by 0.1%, even with the World Cup tourism boost.

Department store sales also registered a modest 0.1% gain in June. This limited growth stems partly from low layoff rates and an employment market that remains fundamentally sound. However, lower-income families are experiencing greater pressure from rising prices and accumulating debt compared to wealthier households that have gained from a stable stock market—a phenomenon economists describe as a K-shaped economic recovery.

The American consumer’s continued willingness to spend provides positive signals 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 in subsequent months, particularly if Middle Eastern tensions continue to prevent energy costs from returning to pre-conflict levels.

“A renewed slowdown in spending, however, beckons over the second half of this year,” observed Oliver Allen, senior US economist at Pantheon Macroeconomics, in his Thursday analyst note. He explained that the cash flow benefit from tax refunds has diminished, leaving consumers more vulnerable to the real income impact from elevated gasoline prices. As retail sales last month rose showed, the economy demonstrates resilience, but challenges ahead could test that strength.