The FINANCIAL — Americans stepped up spending on everything from cars to clothing in July, giving the economy a much-needed jolt as it entered the year’s second half, according to Nasdaq.
Retail sales rose a seasonally adjusted 0.6% from a month earlier, the Commerce Department said on August 13. Sales were flat in June after climbing briskly in May.
Excluding cars, sales climbed 0.4% in July, the third consecutive month of solid gains.
Last month’s spending boost–which matched the expectation of economists surveyed by The Wall Street Journal– suggested the U.S. economy’s foundation remains sturdy despite turmoil around the globe. Car sales continued to climb rapidly last month, while households also boosted spending on furniture, building supplies, restaurants meals and bar tabs.
Consumer spending accounts for about 70% of economic activity in the U.S. and thus is a key measure of the economy’s vitality. Retail sales represent a big chunk of overall consumer spending.
Retail sales have been choppy in recent months, though they are generally inching upward, growing 2.4% in the year through July. The mild increase likely reflects Americans’ weak wage growth, financial discipline by households scarred from the recession, and low inflation that has kept a lid on prices.
But consumers are getting a boost by several factors that could lead to steady gains in coming months. Solid job growth over the past year and a half has increased the number of Americans with paychecks. A steady rise in home values has boosted their wealth. And a drop in gasoline prices-to $2.63 nationally, down 25% from a year ago-has cut their costs.
There are signs consumers are using their savings at the pump to spend at other retailers, stirring economic activity. Thursday’s report showed that while sales at service stations declined 15% over the past year, purchases excluding gasoline are up 4.5% over the same period.
Last month’s gain retail-sales gain was broad-based. Sales at car and auto-parts dealers rose 1.4%. Purchases climbed 1.5% at online sites and other nonstore retailers; 0.9% at sporting-goods dealers; 0.8% at furniture stores; and 0.4% at clothing stores.
Sales fell at general merchandise stores, department stores and electronics retailers.
Other measures have sent mixed signals about consumer spending. Personal consumption, a measure by the Commerce Department that reflects all types of consumer spending, rose just 0.2% in June, the smallest gain since February.
Household spending will likely determine the economy’s growth in the second half of 2015, and it will also likely influence the debate within Federal Reserve about when and how quickly to raise short-term interest rates. Rates have been pinned near zero since the recession in an effort to spur hiring, spending and investment. The Fed has indicated it could start to raise rates as early as September, but only if it has confidence the economy is growing steadily.
Other sources of activity, such as exports and business investment, are being held back by a limping global economy, leaving consumers to pick up the slack.
“Sturdy consumer spending would further add to the Fed’s confidence that the economy is ready for the first step toward policy normalization,” Deutsche Bank economists said in a note to clients earlier this week.
The economy expanded at a 2.3% yearly rate in the second quarter, rebounding from 0.6% growth in the first, as household spending accelerated. Many economists expect growth to clock in at between 2% and 3% in the current quarter.
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