U.S. retail sales rose less than expected in June amid declines in receipts at service stations and building material stores, but consumers boosted or maintained spending elsewhere, which likely kept the economy afloat in the second quarter.
Retail sales increased 0.2% last month, the Commerce Department said on Tuesday. Data for May was revised higher to show sales gaining 0.5% instead of 0.3% as previously reported.
Economists polled by Reuters had forecast retail sales gaining 0.5%. Retail sales are mostly goods and are not adjusted for inflation.
"The economy is plodding along without overheating," said David Russell, vice president of Market Intelligence at TradeStation. "Americans have gotten relief at the gas pump, but also don't have an excessive demand for consumer goods. This is modestly positive news for investors worried about the Fed needing to hike after July."
Though motor vehicle manufacturers reported a strong increase in unit sales last month, the report showed sales at auto dealerships rising only 0.3% in June.
In May, sales at auto dealerships were reported to have surged 1.5% despite data from manufacturers showing a decline in unit sales. Last month's modest rise likely brings the series back in line with data from vehicle manufacturers.
Clothing store sales increased 0.6% in June, while online sales surged 1.9%. Receipts at furniture stores increased 1.4% and electronics and appliance store sales advanced 1.1%.
But receipts at building material and garden equipment supplies dealers dropped 1.2%. Consumers also cut back spending on sporting goods, hobbies, books and musical instruments.
Grocery store sales fell as did receipts at department stores. Sales at services stations dropped 1.4%, reflecting lower gasoline prices. Sales at food services and drinking places edged up 0.1% after rising 1.2% in May. Economists view dining out as a key indicator of household finances.
Spending has remained resilient despite 500 basis points worth of interest rate hikes from the Federal Reserve since March 2022, when the U.S. central bank kicked off its fastest monetary policy tightening cycle in more than 40 years.
A tight labor market continues to boost wage gains while some households still have savings accumulated during the COVID-19 pandemic. Consumers' purchasing power is also gradually improving as inflation subsides.
Excluding automobiles, gasoline, building materials and food services, retail sales increased 0.6% in June. Data for May was revised slightly up to show these so-called core retail sales increasing 0.3% instead of the previously reported 0.2%.
Core retail sales correspond most closely with the consumer spending component of gross domestic product. June's solid rise and May's upward revision to core retail sales suggest that consumer spending, which accounts for more than two-thirds of the U.S. economy, continued to grow last quarter.
The pace was, however, probably slower than the first quarter's rate, which was fastest pace in nearly two years.
Economic growth estimates for the second quarter are currently as high as a 2.3% annualized rate. The economy grew at a 2.0% pace in the January-March quarter.
