June retail sales climb more than expected as Americans confront searing-hot inflation
Economists expected retail sales to climb by 0.8% in June, despite rising prices
Federated Hermes chief equity strategist Phil Orlando and Sarge986 president Stephen Guilfoyle discuss how many more rate hikes it will take to slow inflation on 'The Claman Countdown.'
Americans ramped up their spending at retail stores in June, a sign that consumers are still opening their wallets even as inflation persists at a 40-year high.
Retail sales, a measure of how much consumers spent on a number of everyday goods, including cars, food and gasoline, rose 1% in June from the prior month, the Commerce Department said Friday. Economists surveyed by Refinitiv expected sales to rise 0.8%. It marked a major uptick from the decline of 0.1% in May, which was upwardly revised from the initial report of a 0.3% decline.
The June advance is not adjusted for inflation, meaning that consumers may be spending the same but getting less bang for their buck. When taking inflation into consideration, retail sales would likely show a modest but steady decline in recent months.
A burst in spending at gas stations helped to propel retail sales higher: Gasoline sales climbed 3.6% in June as prices at the pump notched a record-high in mid-June, with the average gallon of gas briefly topping $5. Prices have since subsided, hovering around $4.57, according to AAA.
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People shop for produce at a store in Rosemead, California on June 28, 2022. - Americans' feelings about the economy slumped further in June after falling sharply the month before amid concerns over skyrocketing inflation, according to a survey relea … ((Photo by FREDERIC J. BROWN/AFP via Getty Images) / Getty Images)
Sales at bars and restaurants, meanwhile, jumped 1%, while online sales rose 2.2%. Furniture and home store sales climbed 1.4%. Consumers pulled back on spending in areas like apparel, with sales at clothing stores dropping 0.4% in June. Department stores posted a decline of 2.4%.
"Consumers are continuing to absorb higher prices in non-discretionary categories like gas, and deferring purchases in categories like appliances," said Claire Tassin, a retail and e-commerce analyst at Morning Consult. "Declines in apparel and department store spending indicate that consumers are tightening their belts in some areas as they manage through this difficult period."
The data comes as consumers face the worst inflation spike since 1981: The government reported earlier this week that the consumer price index climbed 9.1% in June, much higher than economists expected. The reading underscored how sticky and persistent inflationary pressures in the economy still are – and raised concerns that higher prices are broadening throughout the economy.
The price spike has dampened Americans' confidence in the economy, with consumer sentiment sinking in early June to the lowest level on record.
Shoppers walk through a store at Tysons Corner Mall in Tysons, Virginia, on April 2, 2022. ((Photo by STEFANI REYNOLDS/AFP via Getty Images) / Getty Images)
The Federal Reserve has responded to the inflation crisis with the most aggressive action in decades as it races to catch up with runaway consumer prices. Policymakers approved a 75-basis point interest rate hike – the first since 1994 – in June on the heels of hotter-than-expected inflation data and confirmed that another increase of that magnitude is on the table in July.
Experts are now ramping up the odds of an even bigger, 100-basis point rate hike at the end of the month following the ugly June inflation report and stronger-than-expected retail sales.
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"The market seems to be welcoming the news, although retail strength could only add fuel to the Fed’s fire to continue its rate hike campaign to cool the economy and tame inflation," said Mike Loewengart, managing director of investment strategy at E*Trade.