Retail Figures Show Consumer Spending Not Slowing
U.S. retail sales rose more than expected in June and a previously reported decline in May sales was revised to a gain, suggesting the U.S. economy isn’t slowing as much as the Federal Reserve would like to see.
“Consumers have a lot of income, confidence is still fairly high, and now you have a stock market roaring back,” said Chris Rupkey, senior financial economist at Bank of Tokyo-Mitsubishi.
Though other economic reports Friday showed a more mixed picture, the Commerce Department said retail sales rose 0.5% last month after a 0.3% increase in May that was originally reported as a 0.3% drop. Higher sales at auto dealers and gasoline stations led the June increase.
Although those figures suggest spending isn’t likely to slow much in coming months, another government report indicated inflation isn’t becoming a problem. Prices paid to U.S. producers for goods other than food or energy products fell 0.1% in June, after a 0.2% increase in May, the Labor Department said. The decline suggests that higher oil and natural gas costs, which pushed up overall prices at the wholesale level by 0.6% last month, aren’t feeding through to other goods.
Meanwhile, output at U.S. factories, mines and utilities rose in June at the slowest pace in nine months, Fed statistics showed. Industrial production increased a less-than-expected 0.2% last month after rising 0.5% in May, the Fed said. Increased output of automobiles, semiconductors and business equipment was offset by slower demand for appliances, clothing, electricity and steel.
The production report suggests “manufacturing output is starting to slow,” said Christopher Low, chief economist at First Tennessee Capital Markets in New York.
In June, when Fed policymakers ended their string of six consecutive interest-rate hikes aimed at cooling the economy, they warned signs of a slowdown “are still tentative and preliminary.” Friday’s reports bear that out.
June’s rise in retail sales was led by an unexpected 1.5% increase at auto dealers, despite previous industry reports showing a decline. The Commerce Department includes repair services, parts and motorcycle and recreational vehicle sales along with cars and trucks. Plus, while auto makers count sales by number of cars, the government measures sales by dollar value. Thus, customers apparently spent more money to buy fewer vehicles.
Sales rose 1.3% at gasoline service stations, at least partly reflecting the recent surge in gas prices. Sales also increased at grocery stores and restaurants, the government said. Building materials outlets, furniture stores and clothing merchants reported declines in sales, the government’s figures showed.
The Labor Department’s report on producer prices showed the biggest gain in the overall index since March.
Producer energy prices rose 5.1% in June after falling 0.5% the previous month. The rise was led by a 17% jump in the cost of liquefied petroleum gas and a record 5.7% increase in natural gas prices. The cost of gasoline rose 11.8%.
Food prices fell 0.3% after a 0.2% decline in May. The cost of fruits and vegetables fell, while the cost of eggs rose.
Passenger car prices fell 0.5%, after rising 0.9% in May. The cost of paper products such as tissues declined 1.3% last month, and cigarette prices dropped 1.8%.
Through June, the overall PPI rose at a 4.8% annual rate, compared with a 2% pace for the first half of 1999. The core PPI, which excludes food and energy costs, increased at a 1% rate. Through June 1999, the core rate was unchanged.
