Broad-based Sales Gain Points to Stronger Growth: Economy

Sales at U.S. retailers climbed in June as department stores, clothing outlets and Internet merchants led a broad-based gain that will help provide momentum for the economy in the second half of the year.

The 0.2 percent gain in purchases followed a 0.5 percent advance in May that was larger than previously reported, Commerce Department figures showed today in Washington. While the increase was less than projected, due to an unexpected decline in auto sales, demand climbed in nine of 13 major retail categories.

Sustained hiring is making Americans more comfortable opening their wallets, signaling the economy’s projected rebound in the second quarter will persist. To help ensure further progress in the face of limited wage gains, Federal Reserve Chair Janet Yellen today said the central bank must press on with monetary stimulus.

The retail figures show “a strong consumer feeding into second-quarter GDP growth,” said Michael Hanson, U.S. senior economist for Bank of America in New York. “You are seeing some steady gains in employment, less so in wages but that does help.”

Economists at Barclays Plc and Morgan Stanley were among those who raised their tracking estimates for second-quarter gross domestic product after the report.

Regional Manufacturing

Regional data today on manufacturing provided further evidence the economy is snapping back from a first-quarter slump. The Federal Reserve Bank of New York’s factory index climbed in July to the highest level since April 2010 as orders, sales and employment picked up.

The Standard & Poor’s 500 Index dropped, following yesterday’s rebound, as Fed concerns about valuations among social-media and biotech companies overshadowed better-than-estimated bank earnings. The S&P 500 fell 0.2 percent to 1,973.28 at the close in New York.

The June advance in retail sales fell short of the 0.6 percent increase projected by the median estimate of 83 economists surveyed by Bloomberg. Estimates ranged from gains of 0.2 percent to 1.1 percent after a previously reported 0.3 percent increase in May.

Further healing in the labor market is giving households the wherewithal to spend. Employers added 288,000 jobs in June, lifting the average monthly advance so far in 2014 to almost 231,000. If that pace is sustained, job gains this year would be the best since 1999. The unemployment rate dropped last month to an almost six-year low of 6.1 percent.

Fed’s Yellen

Even so, Yellen today said that “significant slack” remains in the labor market, including restrained wage growth and low labor-force participation.

“A high degree of monetary policy accommodation remains appropriate,” Yellen said in her semi-annual testimony to the Senate Banking Committee. “Although the economy continues to improve, the recovery is not yet complete.”

Wages posted a 2 percent year-over-year increase in June, matching the average since the recession ended five years ago. Consumer prices climbed faster than that in May, the latest data available, at 2.1 percent.

Retail sales in June were held back by an unexpected 0.3 percent drop in sales of automobiles and parts after four straight increases. The figures, which aren’t used in calculating GDP, were at odds with industry data.

Car Sales

Cars and light trucks sold at a 16.9 million annual pace in June, the strongest since July 2006, according to Ward’s Automotive Group. Deliveries at General Motors Co. and Ford, the two largest U.S. automakers, exceeded analysts’ estimates. The government uses these industry figures in calculating growth.

“The labor market is achieving somewhat better footing” and “housing data in May were showing some signs of revival,” Ellen Hughes-Cromwick, chief economist at Dearborn, Michigan-based Ford Motor Co., said on a July 1 sales call. “We’ve seen very good improvements in manufacturing activity. Consumer sentiment has been in good stead and incomes are gaining ground.”

Purchases excluding cars climbed 0.4 percent in June for a second month. Sales at general merchandise and department stores jumped 1.1 percent, the fourth gain in the last five months. Receipts climbed 0.8 percent at clothing merchants and 0.9 percent at non-store retailers.

Core sales, the figures used to calculate GDP and which exclude such categories as autos, gasoline stations and building materials, increased 0.6 percent last month, the best showing since March. The gain boosted the three-month annualized rate to 6.7 percent, the strongest end-of-quarter reading since the beginning of 2011.

Tracking Estimates

Economists at Barclays boosted their second-quarter growth forecast to 3 percent from 2.7 percent, while those at Morgan Stanley took their projection to 3.5 percent from 3.2 percent.

The world’s largest economy shrank at a 2.9 percent annualized rate in the first quarter, in part because an unusually harsh winter restrained consumer spending, figures from the Commerce Department show. GDP is projected to have grown at a 3.3 percent pace last quarter and at an average 3.1 percent rate in the second half of the year, according to the median forecast of economists surveyed by Bloomberg this month.

(Updates with closing stocks in seventh paragraph.)
    Before it's here, it's on the Bloomberg Terminal. LEARN MORE