WASHINGTON, (Reuters) - U.S. retail sales surged in July as consumers bought a range of goods even as they cut back on motor vehicle purchases, which could help to assuage financial markets’ concerns that the economy was heading into recession.
The Commerce Department said on Thursday retail sales rose 0.7% last month. Data for June was revised slightly down to show retail sales gaining 0.3% instead of increasing 0.4% as previously reported.
Economists polled by Reuters had forecast retail sales would rise 0.3% in July. Compared to July last year, retail sales increased 3.4%.
Excluding automobiles, gasoline, building materials and food services, retail sales jumped 1.0% last month after advancing by an unrevised 0.7% in June. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.
July’s gain in core retail sales suggested strong consumer spending early in the third quarter, though the pace will likely slow from the April-June quarter’s robust 4.3% annualized rate. Consumer spending, which accounts for more than two-thirds of the economy, is being underpinned by the lowest unemployment rate in nearly half a century.
That is blunting some of the hit on the economy from a downturn in manufacturing, which is underscored by weak business investment. The economy grew at a 2.1% rate in the second quarter, decelerating from the first quarter’s 3.1% pace. Growth estimates for the third quarter are below a 2.0% rate.
The data will likely not change expectations that the Federal Reserve will cut interest rates again next month as the outlook for the economy continues to darken against the backdrop of trade tensions and slowing growth overseas.
A key part of the U.S. Treasury yield curve inverted on Wednesday for the first time since June 2007, triggering a stock market sell-off. An inverted Treasury yield curve is historically a reliable predictor of looming recessions.
Financial markets have fully priced in a 25-basis-point rate cut at the U.S. central bank’s Sept. 17-18 policy meeting. The Fed lowered its short-term interest rate by a quarter point last month, citing the acrimonious U.S.-China trade war and slowing global economies.
Auto sales fell 0.6% in July after rising 0.3% in June. Receipts at service stations rebounded 1.8%, reflecting higher gasoline prices. Sales at building material stores gained 0.2%.
Receipts at clothing stores increased 0.8%. Online and mail-order retail sales jumped 2.8%, the most in six months, after rising 1.9% in June. They were likely boosted by Amazon.com Inc’s (AMZN.O) Prime Day. Receipts at furniture stores rose 0.3%.
Sales at restaurants and bars accelerated 1.1%. But spending at hobby, musical instrument and book stores dropped 1.1% last month.
Reporting by Lucia Mutikani Editing by Paul Simao