U.S. retail sales rose higher than expected last month — a sign that the economy remained strong early in the third quarter.
According to Reuters, the Commerce Department revealed that, with the exclusion of automobiles, gasoline, building materials and food services, retail sales increased 0.5 percent in July, and rose 6.4 percent from a year ago. Economists had forecast retail sales going up 0.1 percent in July.
However, data for June was revised lower to show sales gaining 0.2 percent instead of the previously reported 0.5 percent.
In July, auto sales rose 0.2 percent, while sales at clothing stores rebounded 1.3 percent after declining 1.6 percent in June. Service stations saw receipts that went up 0.8 percent, online and mail-order retail sales increased 0.8 percent, and spending at restaurants and bars increased 1.3 percent.
The boost in consumer spending is due to a tightening labor market, which is gradually pushing up wages. In addition, tax cuts and higher savings are also playing a role in the rise in retail sales.
Data also showed manufacturing output rising steadily in July, and worker productivity growing at its fastest pace in more than three years in the second quarter. But a drop in labor costs did show moderate wage inflation.
“The economy appears to be very well-positioned to continue to grow,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors in Kalamazoo, Michigan. “The persistently optimistic consumer sector is doing its part to keep the growth engine going, and retailers are benefiting.”
Strong domestic demand is seen as a signal that the Federal Reserve will raise interest rates in September for the third time this year. It already increased borrowing costs in June and forecasted two more interest rate hikes by December.
“The Fed continues to face an economy that has strong growth, rising prices but economic uncertainties, especially when the trade situation is factored in,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania. “Unless Turkey unexpectedly creates major economic and financial problems, two more rate hikes remain the likely course of action.”