Business

U.S. retail sales rise 0.8% in July

Hopes that the U.S. economy may emerge from its slump got a lift Tuesday from a report that Americans increased their spending at retailers in July by the most in five months.

Sales make sharpest increase since February

U.S. retail sales rose 0.8 per cent from June to July, sharpest increase since February. (Mario Tama/Getty)

Hopes that the U.S. economy may emerge from its slump got a lift Tuesday from a report that Americans increased their spending at retailers in July by the most in five months.

From cars, electronics and sporting goods to furniture, building supplies and garden equipment, every major category of spending rose last month.

It was a heartening start to the second half of the year after consumers had reduced their retail spending in each month of the April-June quarter.

Retail sales rose 0.8 per cent from June to July, the Commerce Department said. It was the sharpest increase since February.

The stepped-up spending was evident in Home Depot's report Tuesday that its customers spent more on remodeling and repair projects in the second quarter. Those gains suggested that consumers are feeling more optimistic about the recovery of the housing market.

Americans appear to be taking their cue from the economy's modest but steady improvements. Employers added 163,000 jobs in July, the best month for job growth since February.

Home prices are up. The value of U.S. exports reached a record high last month. U.S. consumers are expressing more confidence. Stock indexes are near their highs for the year. And consumer confidence rose in July for the first time in five months.

"It looks like lower gas prices, a nice rally in stocks and stronger job growth ... helped boost consumer spending" in July said Jennifer Lee, senior economist at BMO Capital Markets.

'Americans are not throwing caution to the wind.'—Chris Christopher, IHS Global Insight

Some economists cautioned that consumers will likely sustain their spending increases only if hiring continues to strengthen. In the meantime, many remain anxious about the job market and held back by slow wage gains and high debts.

"Americans are not throwing caution to the wind," said Chris Christopher, a senior economist at IHS Global Insight. A brighter outlook for the economy might also make the Federal Reserve hesitant to take further action to boost growth when its policy committee meets in September.

Still, the overall economy remains subpar. It grew at an annual rate of just 1.5 per cent from April through June. That's far too weak to lower the unemployment rate, which ticked up in July to 8.3 per cent.

And inflation remains mild, which gives the Fed more leeway to act if it decides the economy needs further help.

The Labor Department said in a separate report Tuesday that wholesale prices rose 0.3 per cent in July from June. Lower energy prices offset sharp gains in the costs of food, cars and light trucks.

Wholesale prices increased only 0.5 per cent in the 12 months that ended in July. That's the lowest since October 2009.

Excluding food and energy costs, prices rose 2.5 per cent in the 12 months that ended in July. It was the smallest year-over-year gain since June 2011.

The government's retail sales report is the government's first look each month at consumer spending, which drives roughly 70 per cent of economic activity.

Overall, consumer spending on goods and services grew only 1.5 per cent in the April-June quarter, the slowest pace in a year.

Americans are also saving more. The savings rate — the portion of Americans' after-tax income that they don't spend — rose to 4.4 per cent in June, the highest in a year.

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