American consumers are spending at a steady clip despite widespread complaints about economic conditions, creating a curious puzzle for Federal Reserve officials trying to gauge inflation's trajectory.
Retail sales climbed 0.2% in June, marking the fifth consecutive monthly gain. May's figures were revised upward to show robust 1% growth. The headline number masks stronger underlying momentum. When gasoline stations are stripped out, sales rose 0.7%, while a 5.3% decline at gas pumps reflected lower fuel prices. Auto dealers posted nearly 2% gains.
Online retailers benefited from Amazon's early Prime Day push, posting 2% growth. Sporting goods stores climbed 1.3% and electronics retailers gained 0.8%. Grocery stores declined 0.4%, clothing fell 0.3%, and health and personal care dropped 0.8%.
Restaurant and bar sales inched up just 0.1%, suggesting the World Cup generated no clear spending bump in June's data.
The resilience comes despite real wages no longer climbing and gasoline prices that spiked earlier in the summer. A tight labor market appears to be the glue holding consumer demand together. Initial jobless claims fell to 208,000 for the week ending July 11, underscoring historically low layoffs. Rising household wealth also appears to be cushioning household balance sheets.
Peter Boockvar, chief investment officer at OnePoint BFG Wealth Partners, noted the strength while cautioning about its foundation. "In the face of the rise in gasoline prices and real wages that are no longer growing, nominal retail sales were pretty good," Boockvar said. "Yes, part of this is at the cost of a very low savings rate, but the labor market has been better this year than last."
The so-called control group, which strips out autos, gasoline, restaurants, and building materials and serves as a key input for GDP estimates, rose a solid 0.5% in June after revisions to the prior two months showed improved performance.
The spending persistence creates a dilemma for the Fed. While resilient consumer demand keeps the economy growing, it also makes it harder to forecast how quickly inflation will ease. Some Fed officials now argue the economy no longer needs protection from slowdown and that controlling inflation remains the primary challenge. Fed governor Lisa Cook cited "surprisingly resilient output" and the continuing AI buildout as evidence demand will remain elevated.
A striking disconnect has emerged between what consumers say and what they do. Surveys show persistent economic pessimism, yet spending remains robust. Fifth Third chief economist Bill Adams captured this dynamic bluntly: "As they have throughout the post-pandemic expansion, consumers are grumbling about the state of the economy in surveys, then turning around to spend openhandedly."
Author James Rodriguez: "This is the consumer story that won't quit, and it's making the Fed's job exponentially harder."
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