Consumer spending is a crucial driver of economic growth, and a new report showing a rise in sales allayed recession fears.
Retail sales in July came in above expectations, the government reported on Thursday, painting an optimistic picture of consumer spending that could ease concerns about the strength of the economy.
The better-than-expected results, pointing to continued economic sturdiness, drove stocks higher. The S&P 500 jumped 1.6 percent, its sixth daily gain in a row. The tech-heavy Nasdaq rose even more.
Retail sales increased 1 percent in July from the previous month, the Commerce Department said, well above the 0.4 percent rise that economists were expecting. A bounce-back in auto sales as cyberattack-related disruptions faded probably intensified the jump in overall retail sales, analysts said. But sales excluding autos and gasoline, a calculation that can be more indicative of spending trends, also beat expectations, rising 0.4 percent.
Consumer spending is a key driver of the U.S. economy, accounting for roughly two-thirds of gross domestic product. The retail sales report, which is not adjusted for inflation, pointed to resilience in consumer spending and provided reassurance after recession fears, tied to weaker-than-expected employment numbers, catalyzed a market sell-off early this month.
Based on the “solid” retail sales data, consumer spending is on track for 3.5 percent growth in the third quarter, according to Kathy Bostjancic, the chief economist of Nationwide. That would propel overall economic growth to a healthy rate of more than 2 percent for the quarter, she wrote in a research note.
Many forecasters have been warning of an economic downturn since the Federal Reserve started raising interest rates two years ago to combat surging inflation. But the U.S. economy has consistently defied those expectations, with robust consumer spending powering a rapid and forceful recovery from the shock of the coronavirus pandemic.
The retail sales numbers are the latest in a string of data points this week that have allayed economic worries.
Walmart reported on Thursday that sales in the latest quarter rose more than analysts’ estimates. The company, which is the largest retailer in the United States, also raised its forecast for sales and profit for the year. Walmart’s shares rose more than 6 percent on Thursday, a big move for a company its size, with a market value approaching $600 billion.
Another reassuring data point on Thursday: Unemployment claims last week fell from the week before, indicating resilience in the job market.
Overall inflation was 2.9 percent in July on a yearly basis, the Bureau of Labor Statistics reported on Wednesday, the first time inflation has dropped below 3 percent since 2021. Cooling inflation has solidified investors’ predictions that the Fed will start lowering interest rates next month.
“More data like this could ease concerns that the economy is tilting toward recession, and take pressure off the Fed to cut rates more aggressively than they’d like to,” said Chris Larkin, head of trading and investing at E-Trade.
It all adds up to “an extremely positive environment for the stock market,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance.
Source: Economy - nytimes.com
