Retail Sales Surge 1.4% in July, Exceeding Forecasts

U.S. consumers spent heartily in July on cars, electronics and other goods as sales at retail stores rose a greater-than-expected 1.4%, a government report Friday showed, suggesting that the economy still had spark.

It was the biggest increase since January, according to the Commerce Department, and well above the 0.8% gain that economists polled by Reuters were expecting.

Excluding motor vehicles and parts, retail sales rose 1%, again the biggest rise since January and exceeding the 0.5% increase that Wall Street economists had forecast.

Federal Reserve policymakers this week decided to keep the target federal funds interest rate steady at 5.25%, after more than a two-year stretch of rate hikes, on views that the economy may be starting to slow enough to crimp inflationary pressures.

Economists said the data indicated that the consumer, a major driver of the economy, was still spending, despite rising gasoline prices and signs of a slowdown in the housing market.

“This blockbuster surge in sales strongly suggests that the economy may not be slowing as much as the central bank had anticipated when it opted to pause its rate-hiking cycle,” said Anthony Chan, managing director and chief economist at JPMorgan Private Client Services in New York.

“This shows the consumer is alive and well,” said Marc Chandler, currency strategist at Brown Brothers Harriman in New York. “It suggests the talk this week about recession is quite alarmist.”

Friday’s report showing a strong appetite among consumers for spending came days ahead of key data to be released next week by the Labor Department that will gauge whether inflation is indeed under control.

Last month’s gain in retail sales follows a 0.4% decline in June, which had been initially reported as a 0.1% decrease.

Sales of motor vehicles and parts surged 3.1% in July after sinking 2.5% the prior month.

Separately, the Labor Department on Friday said prices of goods imported into the U.S. rose 0.9% in July, slightly more than expectations, as oil costs jumped sharply.

Business inventories in June rose a greater-than-expected 0.8%, according to the Commerce Department. Rising inventories can be either a signal of business confidence in future demand or the result of an unexpected decline in sales, causing involuntary stock building.

The ratio of inventories to sales, a measure of how long it would take to deplete stocks at the current sales rate, rose to 1.26 months from 1.25 months in May.