The Commerce Department reports Friday that consumer spending was stable during the June inflation spike. Retail sales rose slightly less than anticipated for June amid higher prices in most categories.
Advance retail sales rose 1% in May, which was higher than the Dow Jones prediction of a 0.9% increase. It was an impressive increase over the May 0.1% decrease, which was revised to 0.3% from the original report.
Contrary to many government statistics, retail sales figures were not adjusted for inflation. However, they rose 1.3% over the month.
The increase was driven by rising fuel and food costs, but the data is still broad-based compared to the other metrics.
Autos excluded, the monthly increase was also 1% which exceeded the 0.7% estimate.
“The 1.0% [month-over-month]The June rise in retail sales isn’t quite as impressive as it seems, because it mostly reflects the increase in nominal sales values due to surging prices,” said Andrew Hunter, senior U.S economist at Capital Economics. “Real consumption in June seems to have been broadly stable, but this is despite the rise in prices.
The consumer sentiment is still very negative. A separate report by the University of Michigan recorded a reading of 51.1. This was slightly higher than the 50 estimates but still below record levels. Expectations for inflation remain high, and the outlook for the next year at 5.2% is little different from those of the last months.
However, markets rallied following the morning’s economic newsThe Dow Jones Industrial Average was up over 470 points within the first hour of trading. Lower yields on government bonds.
The price of gasoline rose by 3.6%, with prices briefly topping $5 per gallon. This was a result that was later reversed when oil prices dropped in July.
Bar and restaurant sales increased by 1% while online sales rose 2.2% and home and furniture sales rose 1.4%. Some brick-and-mortar retail sales declined, however, due to general merchandise falling 0.2% because of a 2.6% decrease in departmental stores.
According to the retail report, consumers were mostly resilient despite the inflation rate that has been the highest since November 1981.
Consumer prices for June were up 9.1% over the past yearThis was due to record-high gas prices and widespread inflation, which drove rents to their highest monthly gain ever since 1986. Dental care also saw its largest increase since at least 1995.
Consumer finances are doing well despite the increase.
Although debt to after-tax income is on the rise, 9.5% still remains below long-term levels according to Federal Reserve data. Due to a $3 trillion drop in stock markets, the household net worth fell in the quarter.
The weakening of other economic data points has however been apparent.
Despite continued spending, confidence levels among consumers are at record lows. Recently, housing data has been poor and regional manufacturing survey are indicating a slowdown. An earlier Fed survey showed that there are concerns over inflation and the possibility of a recession.
The New York Fed released some encouraging news Friday morning about the manufacturing sector.
For July, the Empire State Manufacturing Survey reported a 11.1 reading. This represents the difference in percentages between expansion and contraction. This was much higher than the Dow Jones prediction of a minus-2 and also reflected large gains in shipment, which is a good sign considering problems with supply chains that have contributed to inflation.
According to the survey, prices are still high but companies with increases in sales are declining.
The downside was that companies became pessimistic about their future with 20.2% of them predicting worsening economic conditions in the coming six months.
Fed policymakers responded to inflation with a number of rate hikes. They are likely to vote for another increase later in the month. This would be the biggest rate rise since the central bank started using the benchmark rate it uses to execute policy almost 30 years ago.
Christopher Waller, Fed Governor, stated Thursday that retail sales reports would play a crucial role in determining whether the Fed will raise the 75- or 100 basis point rate at its July 26-27 meeting.
CME Group data shows that traders reduced their odds of the 100-basis point increase occurring. This cut the likelihood to 42% Friday morning, down from around twice the rate the day prior.