Consumers Drive Retail Growth Despite Rising Petrol Prices
US retail sales saw a higher-than-anticipated increase in June, with consumers purchasing motor vehicles and various other items, even as they faced rising petrol prices. According to the Commerce Department, retail sales rose by 1.0 per cent last month. The previous month’s data was revised, showing a 0.1 per cent decline instead of the initially reported 0.3 per cent drop.
Economists surveyed by Reuters had predicted a 0.8 per cent increase in retail sales, with estimates ranging from a modest 0.2 per cent drop to a strong 2.2 per cent rise. It’s important to note that retail sales are largely composed of goods and are not adjusted for inflation.
In June, consumer prices surged by 9.1 per cent, marking the biggest increase since November 1981. This rise in inflation has led the Federal Reserve to plan for a further 75-basis-point interest rate hike later this month. Since March, the central bank has raised its policy rate by 150 basis points.
Petrol prices hit a record average of over US$5 per gallon in June, as reported by AAA, the motorist advocacy group. This drove up sales at gas stations. However, petrol prices have since decreased from their peak, now averaging US$4.577 per gallon.
A rebound in vehicle purchases, which had been previously hindered by shortages, also contributed to the overall growth in retail sales.
When excluding automobiles, petrol, building materials, and food services, retail sales still rose by 0.8 per cent in June. In May, core retail sales, which are a closer reflection of consumer spending in GDP calculations, were revised to show a decline of 0.3 per cent, down from the previous report of no change.
Although June’s growth appears strong, inflation-adjusted core retail sales likely remained weaker, signalling a more modest level of consumer spending.
GDP forecasts for the second quarter suggest a decline ranging from 1.7 per cent to growth of 1.0 per cent. The economy contracted by 1.6 per cent in the first quarter, largely due to a record trade deficit.
Despite a strong job market, with 11.3 million unfilled positions at the end of May, two consecutive quarters of GDP decline would not necessarily signal a recession, as excess inventories could largely account for the recent GDP decrease.
