Americans are still opening their wallets, even as President Donald Trump’s tariffs start to take a bite.
Retail sales rose 0.6% in June from the prior month, the Commerce Department said Thursday, rebounding from the steep 0.9% decline in May.
June’s number was much stronger than the 0.2% gain economists projected in a FactSet poll. Spending climbed across categories last month, including at car dealerships, which saw one of the biggest monthly increases. Those sales were up a robust 1.2% in June.
However, the figures aren’t adjusted for inflation, and some goods already began to get more expensive because of tariffs last month. After factoring in June’s 0.3% increase in consumer prices, retail sales were up a more modest 0.3%. Retail sales are adjusted for seasonal swings.
Still, there were some signs in the latest retail spending report that Americans aren’t quite yet cutting back. Sales at restaurants and bars — often seen as a barometer of discretionary spending — rose a solid 0.6% in June. Whenever consumers cut back, spending on eating out and alcoholic drinks is usually first on the chopping block.
A measure of retail spending that strips out sales at gas stations, car dealerships and of building materials — known as the “control group,” which provides a clearer picture of spending — was up 0.5% in June, also beating economists’ expectations.
US stocks were slightly higher on Thursday. The Dow opened lower before jumping higher by 75 points, or 0.17%. The S&P 500 was flat and the tech-heavy Nasdaq Composite gained 0.1%.
Investors and economic policymakers are keeping a close eye on whether Americans continue to spend as Trump’s tariffs begin to push up prices, since consumer spending powers about two-thirds of the US economy.
“Don’t count the American consumer out yet,” Heather Long, chief economist at Navy Federal Credit Union, wrote in commentary issued Thursday. “There’s still a lot of trepidation about tariffs and likely price hikes, but consumers are willing to buy if they feel they can get a good deal.”
Businesses say spending has weakened only slightly
Consumer spending was “softening slightly overall” in early July, according to businesses across the country surveyed by the Federal Reserve for its latest “Beige Book” report.
The survey, released Wednesday, was conducted in the weeks leading up to July 7, and most businesses indicated that consumers are seeking bargains these days. For example, a few stores in the Richmond Fed’s district said that “advertised discounts helped drive up foot traffic and sales.”
“There were robust overall sales gains at discount stores and warehouse clubs, while spending on apparel and footwear softened noticeably,” the report said, referring to trends in the Chicago Fed’s district.
But not every retailer is seeing tepid spending. A department store chain in the Northeast said that there were “improving sales, with strong sales in denim and fine jewelry.” Restaurant visits in New York City, especially in Brooklyn, “have continued to pick up,” the report said.
A resilient labor market bodes well for spending
Unemployment remains relatively low, layoffs aren’t picking up, and employers have continued to add jobs at a steady pace — all of which could bode well for consumer spending.
A separate report from the Labor Department released Thursday showed that new applications for unemployment benefits in the week ending July 12, the fifth consecutive weekly decline, to 221,000. That’s the lowest level since mid-April and a historically low level.
In June, employers added 147,000 jobs as the unemployment rate dipped to 4.1% from 4.2%, Labor Department figures show, both beating economists expectations, according to their estimates on FactSet.
However, for workers without a job, today’s US labor market is anything but exceptional. Ongoing worker filings for jobless benefits — those who have received payments for more than one week — edged higher in the week ending July 5, to 1.956 million. That’s slightly below a 3.7-year peak reached in mid-June.
“Unemployed workers are finding it difficult to find new jobs in a labor market where hiring is slow,” Nancy Vanden Houten, lead economist at Oxford Economics, wrote in an analyst note Thursday.
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