WASHINGTON (Reuters) – U.S. retail sales unexpectedly increased in June as demand for goods remained strong even as spending is shifting back to services, bolstering expectations that economic growth accelerated in the second quarter.
The rebound in sales reported by the Commerce Department on Friday was despite purchases of motor vehicles declining again because of a lack of supply caused by a global semiconductor shortage. The scarcity of new motor vehicles is boosting demand for used cars and trucks, helping to fuel inflation.
Vaccinations against COVID-19, low interest rates and massive fiscal stimulus are underpinning retail sales.
“Many retailers are benefiting from increased traffic in stores as well as higher prices for items on the shelves, a much-needed bounce back for many service sector businesses,” said Ben Ayers, senior economist at Nationwide in Columbus, Ohio.
Retail sales rose 0.6% last month. Data for May was revised down to show sales falling 1.7% instead of declining 1.3% as previously reported. Economists polled by Reuters had forecast retail sales dropping 0.4%.
Sales surged 18.0% compared to June last year and are now well above their pre-pandemic level. 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 is now rotating back to services like travel and entertainment, with at least 160 million Americans fully immunized against COVID-19. Retail sales are mostly goods, with services such as healthcare, education, travel and hotel accommodation making up the remaining portion of consumer spending.
Restaurants and bars are the only services category in the retail sales report.
U.S. stock index futures held gains after the data. The dollar was steady against a basket of currencies. U.S. Treasury yields rose.
Receipts at auto dealerships fell 2.0% after declining 4.6% in May. Sales at clothing stores increased 2.6%. Consumers increased spending at restaurants and bars, leading to a 2.3% rise in receipts. Sales at restaurants and bars increased 40.2% compared to June 2020.
Receipts at electronics and appliance stores rose 3.3%; sales at furniture stores fell 3.6%. Sales at sporting goods, hobby, musical instrument and book stores dropped 1.7%. Receipts at food and beverage stores gained 0.6%. Sales at building material stores fell 1.6%.
Online retail sales rose 1.2%, likely lifted by Amazon’s Prime Day, which was emulated by other retailers.
Excluding automobiles, gasoline, building materials and food services, retail sales increased 1.1% last month after a downwardly revised 1.4% decrease in May. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. They were previously estimated to have dropped 0.7% in May.
“With the economy re-opening, services spending has begun to pick up and could pull some spending away from goods toward some services that are not captured in the retail sales report,” said Kevin Cummins, chief U.S. economist at NatWest Markets in Stamford, Connecticut.
Economists expect consumer spending, which accounts for more than two-thirds of U.S. economic activity, logged double-digit growth in the second quarter. Consumer spending grew at an 11.4% annualized rate in the first quarter.
Households accumulated at least $2.5 trillion in excess savings during the pandemic, which is expected to drive spending this year and beyond. From July through December some households will receive income under the expanded Child Tax Credit program, which will soften the blow of an early termination of government-funded unemployment benefits in at least 24 states.
Gross domestic product growth estimates for this quarter are around a 9% rate, which would be an acceleration from the 6.4% pace notched in the first quarter. Economists believe the economy could achieve growth of at least 7% this year. That would be the fastest growth since 1984. The economy contracted 3.5% in 2020, its worst performance in 74 years.
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