WASHINGTON (AP) — Americans increased retail spending last month by the most in a year and a half, easing concerns that the economy could weaken under the pressure of higher prices and interest rates.
The Ministry of Commerce reported Thursday that retail sales rose 1% from June to July, the biggest increase since January 2023, after declining slightly the previous month. Auto dealers, electronics and appliance stores, and grocery stores all reported strong sales gains.
Retail sales for July suggested that the U.S. economy remains robust despite its slowdown under the pressure of high interest rates. They showed that American consumers, the main driver of economic growth, are still willing to spend.
The prospect of a continued growing economy is likely to be boosted by the presidential campaign of Vice President Kamala Harris, who is preparing to Rollout guidelines Friday to ban “price gouging” on food. On Wednesday, her opponent, former President Donald Trump criticized the economic record of the Biden-Harris administrationalthough it drove up the cost of food and monthly mortgage payments exponentially.
Other economic data released on Thursday was also mostly positive, including a report on initial jobless claims. The figures show that businesses are largely retaining their employees and not increasing layoffs.
As Americans spend more money, economists at Morgan Stanley raised their growth forecast for the third quarter from July to September to 2.3% from 2.1%. In the third quarter, the economy grew at a healthy rate of 2.8%.
Overall, recent data suggests that the economy is heading for a “soft landing,” in which the Federal Reserve raises interest rates enough to curb inflation, but not enough to trigger a recession.
“The continued resilience of consumer spending should ease recession fears and reduce the likelihood that markets have placed on a larger (half-percent) cut” at the Fed’s mid-September meeting, said Michael Pearce, an economist at Oxford Economics. Instead, economists increasingly expect the Fed to begin next month with a modest quarter-percentage-point cut in its benchmark interest rate, which affects many consumer and business loans.
Adjusted for inflation, sales rose about 0.8 percent last month. And excluding gas station sales, which do not reflect Americans’ spending appetite, retail sales also rose 1 percent.
Consumers have been affected by high prices and increased interest rates. At the same time, however, average wages have also increased, giving many households the opportunity to continue spending money.
Inflation-adjusted wages have increased slightly compared to the previous year. Households with higher incomes also recorded their wealth growsas stock prices and real estate values have soared over the past three years. Increases in wealth can lead to higher expenses.
Auto sales rose 3.6% last month, the biggest increase since January 2023. This was a rebound from the previous month, when a cyberattack on many car dealerships slowed sales.
Sales at electronics and appliance stores rose 1.6 percent. At home improvement and garden centers, sales rose 0.9 percent. At restaurants, sales rose 0.3 percent, a sign that Americans are still willing to spend money on non-essential items like eating out.
Financial markets collapsed earlier this month on economic concerns after the government reported that hiring significantly weaker than expected in July, and the unemployment rate rose for the fourth consecutive month.
But since then, economic reports have shown that Layoffs are still low and that activity and hiring in the services sector remains stable. Americans also continue to spend money on services such as travel, entertainment and health care, which are not included in Thursday’s retail sales report.
Still, some economists worry that much of Americans’ spending is fueled by increasing credit card use. And the percentage of Americans who default on their credit card payments, while still relatively low, is rising.
But Cooling Inflation could give households the boost they need. Consumer prices rose just 2.9% year-on-year in July, the government said on Wednesday. That was the lowest inflation rate since March 2021. And core inflation, which excludes volatile food and energy costs, fell for the fourth month in a row.
Although Americans are still willing to spend, they are increasingly looking for bargains. On Thursday, Walmart, the country’s largest retailer, reported strong sales for the three months ended July 31.
More and more Americans appear to be shopping at cheaper retailers like Walmart. The company also raised its sales forecast for this year and said it sees no signs of weakness among consumers.
Other companies are also starting to lower their prices to attract consumers, a trend that is helping to curb inflation. McDonald’s said its worldwide comparable-store sales declined in the second quarter for the first time in nearly four years. The company conducted a $5 menu deal in US restaurants in June; most franchisees plan to extend this contract until August.
Evan Louey-Dacus, a New York-based corporate event planner, said he has shifted his spending to discount stores as food prices remain high.
“When inflation really hit food prices,” says Louey-Dacus, 22, “my taste changed. Instead of buying a lot of potatoes or vegetables, I bought a lot of rice. Instead of buying a lot of eggs, I bought sausage or bought more local products.”
Louey-Dacus also buys used items at thrift stores and picks up opened items he’s owned before. His most recent purchase: a laptop in an opened box at Best Buy that was marked down to $600 from around $750.
Arie Kotler, CEO of Arko Corp., a convenience chain based in Richmond, Virginia, said he’s noticed customers spending less on salty snacks and candy bars since May. He believes people are struggling with the high interest rates on their credit cards, as many of them have exceeded their limits.
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AP Business Writers Anne D’Innocenzio in New York and Dee-Ann Durbin in Detroit contributed to this report.
