Retail Details Signal Quicker Economic Growth
Business + Economy

Retail Details Signal Quicker Economic Growth


A gauge of U.S. consumer spending rose in July at its fastest pace in seven months, a sign of quicker economic growth that could strengthen the case for the U.S. Federal Reserve winding down a major economic stimulus program.

Other data on Tuesday showed U.S. small business optimism improving in July, while import prices rose less than expected during the month.


Retail sales outside of cars, gasoline and building materials rose 0.5 percent last month, the Commerce Department said. That reading is a key component of the department's measure of consumer spending, which is the biggest driver of the economy and accounts for about 70 percent of national output. July's gain was the biggest since December, and suggests the economy could be regaining steam after tax hikes and federal budget cuts dragged on growth in the first half of the year.

"Households may be spending a bit more freely in response to the recent gains in employment," said Paul Dales, an economist at Capital Economics in London.

Economists polled by Reuters had expected the core measure of retail sales to increase 0.3 percent. Fed Chairman Ben Bernanke said last month that the U.S. central bank could begin reducing monthly bond purchases, which are aimed to lower borrowing costs and boost employment, by the end of the year. The Fed currently buys $85 billion a month in long term bonds, a program known on Wall Street as QE, or quantitative easing. Many economists expect the Fed will begin reducing purchases next month, and the retail sales data reinforced that view.


"Today's number (for retail sales) should keep the Fed on track to curtail quantitative easing purchases in September," said Joseph Trevisani, chief market strategist at WorldWideMarkets in Woodcliff Lake, New Jersey. Yields on government debt rose following the data, a sign that investors believed that the chance of the Fed tightening policy had increased. U.S. stock index futures pointed to a higher open following the data.

In July, sales jumped 0.6 percent at U.S. department stores, the biggest gain since March 2012. Sales also posted strong gains at health and personal goods stores. Sales of motor vehicles fell 1 percent during the month. Overall retail sales rose 0.2 percent during the month, just below analysts' expectations. Overall sales were helped by a strong gain in gasoline receipts. A separate report from the National Federation of Independent Business showed sentiment improved among small business owners in July, a further sign that economic activity could accelerate in the second half of the year.

While U.S. consumers have been stung by higher gasoline prices this year, the Labor Department said prices for overall imports rose 0.2 percent, missing analysts' expectations for a stronger gain. This suggests little inflationary pressure coming from abroad. An increase in the cost of petroleum was offset by the biggest drop in the price of non-petroleum goods in nearly 4-1/2 years.

This article was written by Jason Lange.