Robust Economy Sends Americans on Buying Spree
The nation’s biggest retailers reported exceptionally strong sales in June, as the robust U.S. economy and warm weather sent Americans on a buying spree for everything from bathing suits to air conditioners.
Separately, there was additional evidence that American consumers are going deeper into debt to finance their ongoing spending boom. The Federal Reserve said consumer installment credit in May expanded by $12.1 billion to $1.34 trillion, the biggest monthly increase since January.
The retail bonanza has been particularly strong the last two months, inspiring many Wall Street analysts to raise their forecasts for second-quarter earnings for retailers.
In addition to the robust economy, consumers are enjoying low inflation and unemployment and a record-setting stock market. Although the Dow Jones industrial average retreated from Wednesday’s all-time high, the Nasdaq composite index rose to a second straight record Thursday.
New Treasury Secretary Lawrence Summers said consumers’ earnings power has room to grow even faster.
“If we can keep our fundamentals strong and continue the terrific productivity improvement, I think we have got room to give people wage increases that run ahead of price increases and represent really higher standards of living,” Summers said on NBC’s “Today.”
Separately, the Labor Department reported Thursday that the number of Americans filing new claims for unemployment benefits fell by 6,000 last week to 294,000, marking the second consecutive drop and the lowest level in more than three months.
“Americans are happy about where the economy is, and that’s encouraging many of them to go on a spending spree,” said Kurt Barnard, president of the newsletter Barnard’s Retail Trend Report in Upper Montclair, N.J. “We saw that in June. Stores across the board did well, and the few that didn’t stood out like a sore thumb.”
The surge in consumer borrowing in May was driven by strong car and truck sales. Consumer installment credit measures credit through such means as auto loans or credit card purchases that then require monthly payments.
Analysts had anticipated a sharp pickup in May borrowing because new car and truck sales were in overdrive throughout the month. Non-revolving credit, the category including vehicle loans, shot up by $10 billion in May--a 15.7% annual rate. Credit card debt expanded more slowly at $2.1 billion, or a 4.4% rate.
“You’re still seeing borrowing run at a pretty nice clip because households have enough income coming to service the debt,” said Kevin Flanagan, an economist at Morgan Stanley Dean Witter in New York. “You just wonder how long the pace is sustainable, but we’ve been saying that for a while.”
Among retailers, the big winners last month were the discount, specialty and consumer electronics chains.
“With strong sales in May and June, retailers now move into clearance mode in July, but they don’t have to get rid of too much merchandise,” said Thomas Tashjian of Bank of America Securities in San Francisco. “I think earnings will be very strong this quarter.”
