US Retail Sales Unexpectedly Rise in June

US Retail Sales Unexpectedly Rise in June
Customers visit Macy's flagship store in New York City, N.Y., on May 20, 2021. (Eduardo Munoz/Reuters)

WASHINGTON—U.S. retail sales unexpectedly increased in June as demand for goods remained strong even as spending is shifting back to services.

The rebound in sales reported by the Commerce Department on Friday was despite purchases of motor vehicles declining again because of a lack of supply caused by a global semiconductor shortage. The scarcity of new motor vehicles is boosting demand for used cars and trucks, helping to fuel inflation.

Retail sales rose 0.6 percent last month. Data for May was revised down to show sales falling 1.7 percent instead of declining 1.3 percent as previously reported. Economists polled by Reuters had forecast retail sales dropping 0.4 percent.

Sales surged 18.0 percent compared to June last year and are now well above their pre-pandemic level. Demand shifted to goods like electronics and motor vehicles during the pandemic as millions of people worked from home, took online classes and avoided public transportation.

Spending is now rotating back to services like travel and entertainment. Retail sales are mostly goods, with services such as healthcare, education, travel, and hotel accommodation making up the remaining portion of consumer spending.

Restaurants and bars are the only services category in the retail sales report.

U.S. stock index futures held gains after the data. The dollar was steady against a basket of currencies. U.S. Treasury yields rose.

A customer wears a mask as she waits to get a receipt at a register in a Target store in Vernon Hills, Ill., on May 23, 2021. (Nam Y. Huh/AP Photo)
A customer wears a mask as she waits to get a receipt at a register in a Target store in Vernon Hills, Ill., on May 23, 2021. (Nam Y. Huh/AP Photo)

Broad Gains

Receipts at auto dealerships fell 2.0 percent after declining 4.6 percent in May. Sales at clothing stores increased 2.6 percent. Consumers increased spending at restaurants and bars, leading to a 2.3 percent rise in receipts. Sales at restaurants and bars increased 40.2 percent compared to June 2020.

Receipts at electronics and appliance stores rose 3.3 percent; sales at furniture stores fell 3.6 percent. Sales at sporting goods, hobby, musical instrument, and book stores dropped 1.7 percent. Receipts at food and beverage stores gained 0.6 percent. Sales at building material stores fell 1.6 percent.

Online retail sales rose 1.2 percent, likely lifted by Amazon’s Prime Day, which was emulated by other retailers.

Excluding automobiles, gasoline, building materials and food services, retail sales increased 1.1 percent last month after a downwardly revised 1.4 percent decrease in May. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. They were previously estimated to have dropped 0.7 percent in May.

“With the economy reopening, services spending has begun to pick up and could pull some spending away from goods toward some services that are not captured in the retail sales report,” said Kevin Cummins, chief U.S. economist at NatWest Markets in Stamford, Connecticut.

Economists expect consumer spending, which accounts for more than two-thirds of U.S. economic activity, logged double-digit growth in the second quarter. Consumer spending grew at an 11.4 percent annualized rate in the first quarter.

Households accumulated at least $2.5 trillion in excess savings during the pandemic, which is expected to drive spending this year and beyond. From July through December some households will receive income under the expanded Child Tax Credit program.

Gross domestic product growth estimates for this quarter are around a 9 percent rate, which would be an acceleration from the 6.4 percent pace notched in the first quarter. Economists believe the economy could achieve growth of at least 7 percent this year. That would be the fastest growth since 1984. The economy contracted 3.5 percent in 2020, its worst performance in 74 years.

By Lucia Mutikani