Recent data from the Commerce Department reveals that Americans significantly increased their spending at retailers last month, marking the most substantial surge in a year and a half. This positive trend has helped alleviate worries about a potential economic slowdown due to rising prices and interest rates.
In July, U.S. retail sales saw a notable 1% jump compared to the previous month, following a slight decline in June. Various sectors experienced robust growth, with auto dealers, electronics and appliance stores, and grocery stores all reporting strong gains.
When adjusted for inflation, retail sales still rose by approximately 0.8%. Excluding gas station sales, which do not fully reflect consumer spending patterns, retail sales increased by 1%.
Despite facing challenges such as high prices and elevated interest rates since the onset of the pandemic, consumers have been supported by rising average wages. Inflation-adjusted wages have seen a slight increase from the previous year, while higher-income households have witnessed a growth in wealth, driven by surges in stock prices and home values over the past three years.
Although concerns arose earlier this month following disappointing job market data for July, subsequent economic reports have shown that layoffs remain low, and service industries continue to exhibit strong activity and hiring trends. Notably, Americans are still indulging in services like travel, entertainment, and healthcare, which are not captured in the latest retail sales report.
While some economists express apprehension about the current spending trend being fueled by increased credit card usage, there is a growing proportion of individuals falling behind on credit card payments. However, the recent moderation in inflation rates could provide a much-needed boost to households. July's consumer price index showed a modest 2.9% year-over-year increase, the lowest since March 2021. Core inflation, excluding volatile food and energy costs, also declined for the fourth consecutive month.
The overall resilience in consumer spending, coupled with improving economic indicators, suggests a more stable outlook for the U.S. economy in the coming months.
