Consumers continued to open up their wallets and spend vigorously last month, and retailers reaped the benefits.
Retail sales rose by 0.5% in July, easily beating expectations for a modest increase. Excluding vehicle and gasoline sales, the increase of 0.6% was even more impressive. On a year-over-year basis, retail sales grew by 6.4%, building on the trend of improving sales growth over much of 2018, while easily eclipsing the long-term average of 3.9%.
Even so, the picture wasn’t universally positive. Unit auto sales declined slightly in July, but sales in dollar terms still managed to edge higher by 0.2%. With auto sales comprising nearly 20% of all retail activity in the U.S., a meaningful and sustained deceleration would be a headwind to the retail sector as a whole. The fact that top-line sales growth was as strong as it was despite some relative weakness in auto sales is a positive sign.
Conversely, sales at gasoline stations were up 0.8%, building on outsized gains over much of the past year. Gas station sales are up over 22% since last summer, as surging oil prices have carried through to the prices consumers are paying at the pump.
While the retail sector remains in a state of transition with the rise of online retail and increasing challenges for many traditional bricks and mortar stores, the strength of the jobs market and the pervasive optimism of the consumer sector have been key to the improving retail landscape in the last year. Sales at non-store retailers (which encompasses online commerce) continued to grow at a brisk 8.7% pace over the past year, but the improvement in results in the traditional retail channel shouldn’t be overlooked.
By any number of measures, the consumer sector appears to be in relatively good shape. Unemployment is near its lowest level in nearly two decades, and job creation remains robust. While wage growth has been slow to get off the ground, there is growing evidence that wage growth is picking up. Combined with the boost in take-home pay as a result of federal tax cuts earlier this year, consumers have not only the confidence to spend, but growing capacity to do so.
Despite the length of the current expansion, the economy appears to be very well positioned to continue to grow. The persistently optimistic consumer sector is doing its part to keep the growth engine going, and retailers are benefiting. As has long been the case, it’s the story of a resilient U.S. consumer that remains an important pillar supporting the current economic expansion.
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