Retail sales increased 1% in June, exceeding market expectations
KPMG Senior Economist Ken Kim offers his three key takeaways from the June retail sales report.
Shopper resilience: Retail sales grew in June despite surging prices
High prices for food, gas and other essentials have not curbed American appetites for discretionary goods or stopped us from breaking out our wallets.
U.S. retail sales rose by a solid 1% in June, edging out expectations for a 0.9% increase. May retail sales were revised upward to show less of a decline at -0.1% versus the originally reported -0.3%.
The June report and the May adjustment are indicative of a consumer population that is continuing to spend despite white-hot inflation.
Most retail categories saw healthy spending
June’s sales growth was shared, at varying degrees, across a wide range of retail goods.
The biggest gainer was gasoline stations (+3.6%), where prices have fallen from their peak but are still painfully high. The jump comes in the same month that U.S. inflation spiked to a four-decade record.
Spending also picked up for non-essentials, from cars to couches. Motor vehicle dealer sales rose .8% and furniture store sales rose 1.4%. Meanwhile, online retailers posted a 2.2% sales increase.
Some retailers felt pinch of cooling housing market
Sales at building materials, garden equipment, and supply dealers fell for the third consecutive month, likely reflecting the slowdown in housing markets.
With mortgage rates on the rise, home sales are slowing in once-tight markets which in turn is cooling demand for construction and housing-related spending.
Recession fears ease, but data is mixed
The stronger-than-expected retail sales data reduces the chances of negative GDP growth for two consecutive quarters, which is seen by some as the U.S. economy being in a recession.
In reality, a U.S. recession is decided by a committee – the National Bureau of Economic Research. They look at other key economic indicators, not solely GDP, to determine a recession. Since the labor market and industrial activity remain firm, the committee would not likely declare a recession now simply because GDP may have fallen for two quarters in a row.
The report also leaves the door open for a possibly larger than 75 bps interest rate increase by the Fed when they meet later this month.
In all, the June data is a testament to a still resilient consumer who continues to spend despite the headwinds of rising inflation.