US consumers are starting to shop again, even if they’re being tentative about it. After retail sales slowed down three months in a row, from March to May, they rose by 1% in June, in the face of economy-wide inflation.

The increase is largely attributable to consumers bearing the brunt of higher prices, as retail sales data from US Census Department are not adjusted for inflation. But expenditure on gas, online shopping, and furniture outstripped the 1.1 % increase in prices between May and June.

“A solid increase in retail sales—with spending on most categories besides gas and groceries rising faster than inflation—is further evidence that the US economy continued to expand in June,” said Bill Adams, chief economist for Comerica Bank. “With national average gasoline prices coming back down in the first half of July, sentiment could improve, and recession fears ease. Even so, the US economy is close to stalling out, and one more big shock would be enough to push it into recession.”

In May, the sole services category of the retail sales report—bars and restaurants—had outperformed the purchasing of goods, as consumers favored the kinds of experiences they’d missed during the pandemic. In June, spending on restaurants and bars increased by 1%, slightly lower than the monthly inflation rate.

“That’s a silver lining, since dining out is a discretionary expense that would be easy to cut back on,” said Ted Rossman, a Bankrate analyst.

A spending slowdown could be coming
Building supplies, clothing, general merchandise, and health and personal care spending declined in June. With a rising federal funds rate, it’s harder to obtain cheap financing for big-ticket items, and summer vacations may prove more interesting to vaccinated consumers.

“Electronics and appliance stores experienced the largest year-over-year drop in sales, down 9.1%,” Rossman said. “That seems to suggest many households are reluctant to make large purchases right now, perhaps due to concerns about inflation, higher interest rates and worries about a potential recession.”

It’s unclear how long June’s rise in spending will last. Several districts in the US are reporting a slowdown in consumer demand, as food and gas prices raise the cost of living, said Federal Reserve officials in the central bank’s latest Beige Book. The decline in discretionary spending also coincides with a slowdown in housing construction and sales, which may eventually lead to a slide in home prices.


Original source


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