Rise in U.S. Retail Sales Points to Pickup in Spending

Retail sales rose in July for a fourth consecutive month, showing American households are regaining momentum as employment climbs.

The 0.2 percent increase in purchases followed a 0.6 percent June gain that was larger than previously reported, Commerce Department figures showed today in Washington. The numbers in the report that feed into gross domestic product climbed by the most this year, prompting some economists to boost growth estimates.

More jobs and rising household wealth tied to higher home values and stock prices are boosting confidence and triggering improving sales at companies such as Michael Kors Holdings Ltd. A pickup in consumer spending, which accounts for about 70 percent of the economy, would help counter the fiscal headwinds of government cutbacks that have held back growth.

“We’re seeing sales pick up in multiple categories -- that’s a promising sign that consumer spending might be a little bit stronger in the third quarter,” said Michael Brown, an economist with Wells Fargo Securities LLC in Charlotte, North Carolina. “We’ve seen wage and salary growth continue to expand with the pace of employment. That’s helped support some additional consumer activity.” Wells Fargo is the top forecaster of retail sales, according to data collected by Bloomberg.

Survey Results

The median forecast of 81 economists surveyed by Bloomberg called for a 0.3 percent advance in sales for last month. Estimates ranged from a drop of 0.1 percent to a 0.8 percent gain. The reading for June was revised up from an initially reported 0.4 percent increase.

Stocks rose, with the Standard & Poor’s 500 Index trimming morning losses, as the sales data reinforced signals the economy is expanding moderately. The S&P 500 climbed 0.3 percent to 1,694.16 at the close in New York. Treasury securities also fell, sending the yield on the benchmark 10-year note up to 2.72 percent from 2.62 percent late yesterday.

Another Commerce Department report today showed inventories at U.S. companies were little changed in June as sales improved, signaling orders to manufacturers will be growing. Merchants had enough goods on hand to last 1.29 months at the current sales pace in June, matching the previous month. The last time the ratio was lower was a year ago.

Nine of 13 major retail categories showed gains last month, led by clothing and general merchandise stores.

Growth Impact

Purchases excluding autos, gasoline and building materials, which render the figures used to calculate GDP, advanced 0.5 percent last month, the most since December, following increases of 0.1 percent in each of the previous two months. Economists at Barclays Plc and Morgan Stanley in New York were among those raising their tracking estimates for third-quarter growth after the report.

“Consumers are still able to go out there and spend despite headwinds from tax increases and the sequester,” said Omair Sharif, a U.S. economist at RBS Securities Inc. in Stamford, Connecticut, which accurately forecast the growth in retail sales. “Job growth is continuing at a moderate clip and we’re making gradual headway.”

Michael Kors Holdings, the luxury-goods company founded by the designer of the same name, this month reported first-quarter profit that topped analysts’ estimates amid surging North American sales. The Hong Kong-based company said revenue in the quarter ended June 29 increased 54 percent from the same time last year. Revenue in North America, Kors’s largest region, rose 46 percent.

Auto Dealers

Today’s report showed sales at automobile dealers fell 1 percent after rising 2.9 percent the prior month. The figures don’t always track the industry data used to calculate economic growth because they can be influenced by prices.

Cars and trucks sold at a 15.7 million annualized rate last month after a 15.8 million pace in June, the strongest back-to-back readings since the end of 2007, according to figures from Ward’s Automotive Group.

“There’s still significant upside potential for cars,” said Carl Riccadonna, a senior U.S. economist at Deutsche Bank Securities Inc. in New York. “The volume of sales was so abnormally low over the past five years that there’s a lot of catch-up to be done.”

Improving sales have led General Motors Co., Ford Motor Co., Chrysler Group LLC, and Honda Motor Co. to boost capacity. Chrysler is adding almost 300 jobs at a Michigan engine plant and Honda will invest $215 million at facilities in Ohio.

Continuing Improvement

“We’re at the beginning of a broad-based recovery for the economy in auto retail,” said Michael Jackson, chairman and chief executive officer of AutoNation Inc., in Fort Lauderdale, Florida. The largest U.S. auto-dealership group last month reported record earnings per share in the second quarter. “As we look at the rest of 2013, we believe that the improvement in new vehicle sales will continue,” Jackson said on a July 18 earnings call.

Areas showing gains included restaurants and bars, grocery stores and sporting goods outlets. Within general merchandise, department stores showed a 0.6 percent increase in sales last month, the biggest since March 2012.

The gains in consumer spending are extending to restaurants and shopping mall developers such as Rouse Properties Inc. in New York. Luxury goods makers also are rebounding, with LVMH Moet Hennessy, Louis Vuitton SA and Gucci-owner Kering SA last month reporting accelerating sales.

Rising Confident

The Bloomberg Consumer Comfort Index rose in the week ended Aug. 4 to its strongest reading since January 2008. All income groups save one saw confidence improve during the period, with the biggest advances coming at the lower end of the pay scale, signaling the job market is thawing for a bigger share of households.

Employers added 2.28 million workers to payrolls in the year ended July and the jobless rate dropped to 7.4 percent last month, the lowest in more than four years, according to figures from the Labor Department.

An improving job market is helping households better manage finances. Credit card delinquencies fell in the second quarter, according to a survey released today by Chicago-based TransUnion Corp. The last time the rate was lower was in 1994.

Other figures today showed sluggish global growth is helping hold back inflation. The cost of goods imported into the U.S. rose 0.2 percent in July, less than forecast, reflecting the biggest drop in automobile import prices in more than 20 years, according to a report from the Labor Department.

Before it's here, it's on the Bloomberg Terminal.