Fed Rate Cut Prospects Unchanged Amid Steady Retail Sales
June Retail Sales Remain Steady Amid Economic Resilience
U.S. retail sales stayed the same in June, proving consumer resilience and bolstering second quarter prospects for economic growth. Strength in other areas more than balanced a drop in auto dealership receipts. May's sales turned out to be higher than first projected, according the Commerce Department. This information fits the theory that, as inflation cools, the Federal Reserve might start lowering interest rates in September. The consistency in retail sales calmed worries about a severe economic downturn. Although low- and moderate-income consumers are cutting back, Comerica Bank chief economist Bill Adams pointed out that rich consumers are keeping general economic momentum. This mixed consumer behavior emphasizes underlying economic strength in spite of certain weak points. In June, retail sales grew by 2.3% year-on-year; momentum has slowed since the 7.7% rise in January. Cheaper substitutes are being chosen by households; this trend is shown in sales data from big-box stores. The consistency in retail sales implies that consumer expenditure is still a major engine of the economy. Maintaining growth depends on this trend, particularly in view of possible obstacles for the economy. June's numbers give a basis for cautious hope for next economic performance.
Auto Dealership Sales Drop but Broader Retail Sector Shows Strength
June's 2.0% drop in receipts at auto dealerships affected total retail sales. A cyberattack at software provider CDK, which interfered with operations at several dealerships, contributed in some measure to this drop. Notwithstanding this setback, the larger retail sector showed resilience. Following a 1.1% rise in May, online store sales jumped 1.9%. Reflecting reduced fuel prices, sales at gasoline stations dropped by 3.0%. Less expensive gasoline probably released consumer money for other goods and services. Store sales of building materials and garden tools rose 1.4%. With a 0.3% increase, food services and drinking establishments indicate ongoing customer desire in dining out. Sales of furniture increased by 0.6%; those of electronics and appliances by 0.4%. Sales at clothing stores increased by 0.6%. Sporting goods, hobbies, musical instruments, book store sales dropped by 0.1%, on the other hand. Though auto sales fell, the general performance of the retail sector was good. The different performance in several retail categories emphasizes the intricacy of customer behavior. The sector's June performance points to consumers adjusting to evolving economic circumstances.
Federal Reserve's Rate Cut Prospects Remain Unchanged
Though June's retail sales remain the same, forecasts for Federal Reserve rate cuts in September are consistent. The report of the Commerce Department revealed higher-than-expected May sales, so bolstering the idea of a strong economy. The information did not change the expectation of the Fed starting to lower interest rates in view of declining inflation. Comerica Bank's Bill Adams noted indicators of economic softness among low- and moderate-income consumers. Still, rich consumer spending is driving the economy ahead. September's rate cut is still expected by financial markets, then more cuts in November and December. This view was strengthened when Fed Chair Jerome Powell said at an Economic Club of Washington event not that a rate cut is imminent. Labor Department's reported unchanged import prices in June point to possible ongoing decrease in inflation. This trend strengthens the case for upcoming rate reduction. Since last July, the Fed has maintained its benchmark interest rate within the 5.25–5.50% range. Since 2022 it has increased rates by 525 basis points. The present economic data point to a cautious attitude to rate reductions most certainly.
Consumer Spending Patterns Indicate Economic Growth
June consumer spending trends point to strong second quarter economic growth possibilities. Retail sales, excluding cars, gasoline, building materials, and food services, jumped 0.9% according to the Commerce Department. This increased May by 0.4% as well. These fundamental retail sales quite closely match the component of GDP representing consumer expenditure. From a previous estimate of 1.5%, economists today project consumer expenditure increased at a 2.0% annualized rate in the second quarter. With this robust performance, consumer expenditure has a better growth trajectory approaching the third quarter. From a 2.0% pace, the Atlanta Fed has revised their second quarter GDP growth estimate to a 2.5% rate. Though there are encouraging patterns, consumer spending still presents problems. The extra savings accumulated during the COVID-19 epidemic have been exhausted most homes. Higher borrowing costs are driving credit card debt to rise and grow increasingly costly. As the labor market recovers, wage rise is slowing down. Ben Ayers of Nationwide and other economists point out that many consumers—especially those from lower-income homes—are running out of. This emphasizes the conflicted but generally favorable view of consumer expenditure.
Core Retail Sales Show Significant Growth in June
Core retail sales increased significantly in June, excluding erratic sectors including cars and gasoline. After increasing 0.4% in May, the Commerce Department noted a 0.9% increase in these sales. Strong consumer spending indicated by this increase is essential for the state of the economy. Forecasts of a less increase by economists highlighted the strength of the real data. June's 1.9% rise in online store sales helped to explain the general increase. At stores for building materials and garden equipment, sales climbed 1.4%. Drinking venues and food outlets had a modest 0.3% increase. Electronics and appliance stores saw a 0.4% increase; furniture store sales climbed by 0.6%. Retailers of clothes also noted a 0.6% rise in sales. Sales at book, musical instrument, hobby, and sporting goods stores fell somewhat by 0.1%. Though performance varied in several retail sectors, generally the trend was favorable. This increase in core retail sales points to still robust consumer expenditure. As the third quarter gets ready, it lays a strong basis for economic expansion. The statistics emphasizes how strong consumers are against economic difficulties.
Economic Growth Estimates Boosted by Rising Business Inventories
Rising business inventories gave estimates of economic growth for the second quarter some impetus. Following a 0.3% increase in April, the Census Bureau noted a 0.5% increase in May inventories. This increase in inventories helps to explain better GDP projections. Rising from a previous 2.0% pace, the Atlanta Fed changed its second-quarter GDP growth estimate to a 2.5% annualized rate. Strong consumer expenditure and strong business activity help to explain this development. Problems still exist even with the encouraging developments. Most households have run out of the extra savings they accrued during the epidemic. Higher interest rates are driving rising credit card debt that is also getting more costly. As the labor market heals, wage increase is slowing down. Still, the rise in business inventories shows hope for future demand. Maintaining economic improvement depends on this confidence. The rise in inventories is seen by economists as encouraging. It implies companies are getting ready for always high consumer demand. The statistics emphasizes how crucial inventory control is to maintain economic stability. This trend helps to project a good picture of economic performance in the next quarters.
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