Retail Sales Rise as American Consumers Unbowed by Turmoil

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What's Doing Well in Retailing?

Americans aren’t letting global turbulence discourage them from buying a new car or heading to the mall.

Sales at U.S. retailers rose 0.6 percent in July and the prior two months were revised up, Commerce Department data showed Thursday in Washington. July’s gain was broad-based with 11 of 13 major categories advancing.

Demand grew as rising employment, stronger finances and still-cheap fuel propelled consumers last month, even as the sinking stock market in China and ongoing Greek debt crisis hurt confidence. The solid start to the quarter signals household-spending gains can be sustained as events overseas continue to roil markets, which may assure the Federal Reserve that the economy can withstand an increase in interest rates.

“The consumer-driven recovery of the economy continues on track,” said Harm Bandholz, chief U.S. economist at UniCredit Group in New York, who correctly projected the gain in sales. “The fundamentals are all in place for solid consumer spending. The outlook remains strong for the second half of the year.”

The Standard & Poor’s Consumer Discretionary Index, which includes companies such as General Motors Co. and Home Depot Inc. that are sensitive to the ups and downs of the economy, rose 0.6 percent at the close in New York. The S&P 500 fluctuated between gains and losses, closing down 0.1 percent to 2,083.39, as concerns over China’s economy faded.

Global Turmoil

Global markets have been jolted since Chinese policy makers on Tuesday unexpectedly devalued their currency, the yuan. That may further strain already unsteady consumer confidence.

The Bloomberg Consumer Comfort Index was little changed at 40.7 in the week ended Aug. 9 compared with 40.3 in the prior period, which was the lowest level since early June, another report showed Thursday. While attitudes on the buying climate improved, views on the economy and personal finances stagnated.

The increase in retail sales last month matched the median forecast of economists surveyed by Bloomberg. Estimates ranged from gains of 0.1 percent to 1 percent.

Upward revisions to retail sales figures from May and June, combined with another report that showed inventories jumped at the end of the quarter, prompted economists to boost tracking estimates of second-quarter consumer spending and gross domestic product. Economists at Morgan Stanley and Barclays Plc now see growth exceeding 3 percent at an annualized rate from April through June, compared with the Commerce Department’s advance estimate of 2.3 percent issued last month.

Mixed Outlook

The third-quarter outlook was more mixed, with the gain in retail sales boosting some consumer-spending forecasts, while the June surge in stockpiling signaled future cutbacks that will hurt growth.

Sales at automobile dealers grew 1.4 percent in July after dropping 1.5 percent the prior month, Thursday’s Commerce Department report showed.

Industry data from Ward’s Automotive Group showed sales of cars and light trucks climbed to a 17.5 million annualized rate in July from almost 17 million the prior month. GM and Ford Motor Co., whose sales exceeded forecasts, are among the beneficiaries of rising demand for large and luxury sport utility vehicles.

Purchases at non-store retailers, which include online merchants, were among the best performers last month. Sales rose 1.5 percent, the biggest gain since February.

Internet Sales

Amazon.com Inc. held a Prime Day on July 15 to mark its 20th anniversary, featuring reduced prices on television sets, lawnmowers and other goods. The company said the promotion helped to drive orders surpassing Black Friday, an annual U.S. sales event following the Thanksgiving Day holiday that kicks off the year-end shopping season.

The job market is giving consumers the wherewithal to keep spending. Payrolls grew in July by 215,000 workers following a 231,000 gain in the prior month, and the jobless rate held at a seven-year low of 5.3 percent.

A report Thursday from the Labor Department showed firings are hovering close to a four-decade low. While claims for jobless benefits climbed by 5,000 to 274,000 in the period ended Aug. 8, they remain close to the 255,000 reached a month ago that was the lowest since 1973.

The economy is improving as Fed officials debate when to raise interest rates for the first time since 2006.

Fed Forecast

Seventy-seven percent of economists surveyed by Bloomberg Aug. 7-12 said the central bank will raise its main policy rate next month. All respondents were given the opportunity to revise their forecasts following the news of China’s currency devaluation.

Growing demand just reinforces forecasts that the world’s largest economy can withstand higher borrowing costs.

“Mark this retail sales report as an additional factor that may tilt the Federal Reserve toward a September hike,” Adolfo Laurenti, deputy chief economist at Mesirow Financial Holdings Inc. in Chicago, said in a research note.

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