- Households buy other goods, services after replacing old cars
- Slump in sentiment post-Brexit unlikely to last as stocks rise
American auto dealers had a good run over the first seven years of the current economic expansion. Now it looks like other retailers are benefiting as well.
A stronger-than-forecast 0.6 percent gain in retail sales for June was propelled by growing demand at building-material stores, online merchants and purveyors of sporting goods among others, figures from the Commerce Department showed Friday in Washington. In fact, 11 of the 13 major categories showed gains last month with cars among the smaller contributors.
That’s a turnaround from the early years of the recovery when cars were king as cheap financing prompted households to turn in their late-model automobiles for new rides. As the expansion enters its eighth year, a still-improving job market, growing wages, rebounding home values and record stock prices may finally be giving consumers the confidence and means to think about venturing beyond dealer showrooms.
“It’s a wider variety of goods and services that consumers are spending more money on,” said Gus Faucher, deputy chief economist at PNC Financial Services Group Inc. in Pittsburgh, which is the best forecaster of retail sales over the past two years, according to data compiled by Bloomberg. “It’s broad-based improvement in consumer spending. It says that consumers are feeling pretty good.”
Core sales, which are the figures used by the government to calculate gross domestic product and exclude auto dealers and a few other categories, also climbed more than projected. They were up 7.4 percent at an annualized rate over the past three months, the biggest gain in two years.
Economists who track every wiggle in the data to update their GDP forecasts, boosted growth estimates after the report. Analysts at Barclays Plc raised their tracking forecast for the second quarter to a 2.9 percent annualized rate from 2.6 percent. Counterparts at Morgan Stanley upgraded theirs to 2.2 percent from 2 percent.
One caveat is that much of the spending data covered the period before U.K. voters went to the polls on June 23 and decided to leave the European Union. The University of Michigan’s consumer sentiment survey showed confidence slumped in early July as higher-income Americans fretted about the immediate, and brief, plunge in global stock markets.
Richard Curtin, director of the survey, predicted confidence would rebound now that stocks have recovered. In any case, the drop wasn’t enough to shake his own confidence that consumer spending would power ahead.
“The strength in consumer spending is still there,” Curtin said in a Bloomberg conference call. He predicted, however, that auto sales will be little changed over the next year.
“The strength will be in retail sales other than autos during the second half of this year,” he said.