Cars, clothing purchases help July retail sales beat expectations

Washington

US RETAIL sales rose more than expected in July as households boosted purchases of motor vehicles and clothing, suggesting the economy remained strong early in the third quarter.

Other data on Wednesday showed worker productivity growing at its fastest pace in more than three years in the second quarter, but a drop in labour costs pointed to moderate wage inflation.

Strong domestic demand supports expectations the Federal Reserve will raise interest rates in September for the third time this year.

The Commerce Department said retail sales increased 0.5 per cent last month. But data for June was revised lower to show sales gaining 0.2 per cent instead of the previously reported 0.5 per cent rise. Economists polled by Reuters had forecast retail sales nudging up 0.1 per cent in July. Retail sales in July increased 6.4 per cent from a year ago.

Excluding automobiles, petrol, building materials and food services, retail sales advanced 0.5 per cent last month after a downwardly revised 0.1 per cent dip in June. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product (GDP).

Core retail sales were previously reported to have been unchanged in June. Consumer spending is being supported by a tightening labour market, which is steadily pushing up wages. Tax cuts and higher savings are also underpinning consumption.

July's increase in core retail sales suggested the economy started Q3 on solid footing after logging its best performance in nearly four years in Q2.

GDP surged at a 4.1 per cent annualised rate in the April-June period, almost double the 2.2 per cent pace in the first quarter. While the economy is unlikely to repeat Q2's robust performance, growth in the July-September period is expected to top a 3.0 per cent rate.

The Fed increased borrowing costs in June and forecast two more interest rate hikes by December.

Prices of US Treasuries fell and the US dollar added slightly to gains immediately after the release of the data. US stock index futures were trading lower.

Last month, auto sales rose 0.2 per cent after edging up 0.1 per cent in June. Sales at clothing stores rebounded 1.3 per cent after declining 1.6 per cent in June. Receipts at service stations increased 0.8 per cent.

Online and mail-order retail sales increased 0.8 per cent, likely boosted by Amazon.com Inc's "Prime Day" promotion. That followed a 0.7 per cent rise in June. Americans spent more at restaurants and bars, lifting sales 1.3 per cent.

But receipts at furniture stores fell 0.5 per cent and sales at building material stores were unchanged last month. Spending at hobby, musical instrument and book stores declined further in July, falling 1.7 per cent.

In a separate report on Wednesday, the Labor Department said nonfarm productivity, which measures hourly output per worker, rose at a 2.9 per cent annualised rate in the April-June quarter. That was the strongest rate since Q1 of 2015.

Data for Q1 was revised lower to show productivity increasing at a 0.3 per cent pace instead of the previously reported 0.4 per cent rate. Economists had forecast productivity growing at a 2.3 per cent rate in Q2. Compared to Q2 of 2017, productivity increased at a rate of 1.3 per cent.

The government also revised data going back to 1947, which did not materially change the picture of lacklustre productivity growth, though unit labour costs were stronger than previously estimated in 2017 because of upward revisions to hourly compensation. REUTERS