U.S. retail sales recorded their biggest increase in seven months in July as consumers boosted purchases of motor vehicles as well as discretionary spending, suggesting the economy continued to gain momentum early in the third quarter.
The Commerce Department said on Tuesday that retail sales jumped 0.6 per cent last month. That was the largest gain since December 2016 and followed June's upwardly revised 0.3 per cent rise.
Economists polled by Reuters had forecast retail sales increasing 0.4 per cent in July after a previously reported 0.2 per cent decline.
May's retail sales were also revised up to show no change instead of the previously reported 0.1 per cent dip. Retail sales increased 4.2 per cent in July on a year-on-year basis.
Excluding automobiles, gasoline, building materials and food services, retail sales surged 0.6 per cent last month after an upwardly revised 0.1 per cent gain in June. These so-called core retail sales, which correspond most closely with the consumer spending component of gross domestic product, were previously reported to have dipped 0.1 per cent in June.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased at a 2.8 per cent annualized rate in the second quarter. That boosted GDP growth to a 2.6 per cent rate in the April-June period.
With wage growth remaining stubbornly sluggish despite the labor market being near full employment, Americans have been dipping into their savings to fund spending, a trend that economists say is unsustainable.
The savings rate has dropped to 3.8 per cent in the second quarter of this year from a rate of 6.2 per cent in the second quarter of 2015. Low savings and tepid wage growth suggest households would need to borrow to maintain spending.
Motor vehicle sales climbed 1.2 per cent in July, the biggest rise since December 2016, after advancing 0.9 per cent in June. Faced with a huge inventory of unsold cars, auto dealerships are resorting to hefty discounts to attract buyers. Prices for motor vehicles recorded their biggest drop in nearly eight years in July and have decreased for six straight months.
Receipts at service stations fell 0.4 per cent in July.
Sales at building material stores increased 1.2 per cent last month after rising 1.1 per cent in June. Receipts at electronics and appliance stores slipped 0.5 per cent. Sales at clothing stores fell 0.2 per cent after rising 0.7 per cent in June.
Department store retailers are struggling with falling traffic in shopping malls and increased competition from Amazon.com and other online retailers.
Sales at online retailers jumped 1.3 per cent in July, the largest gain since December 2016, likely buoyed by Amazon's Prime Day promotion. Receipts at restaurants and bars increased 0.3 per cent and sales at sporting goods and hobby stores also rose 0.3 per cent.