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US retail sales rose solidly in June as households boosted purchases of automobiles and a range of other goods, cementing expectations for robust economic growth in the second quarter.
Signs of a strengthening economy, together with a tightening labour market and firming inflation, likely will keep the Federal Reserve on track to continue raising interest rates this year.
Fed Chairman Jerome Powell offered an upbeat assessment of the economy last Friday, telling lawmakers that “over the first half of this year, overall economic activity appears to have expanded at a solid pace.” The US central bank raised interest rates in June for the second time this year and has forecast two more rate hikes by the end of 2018.
“This puts the economy in a very, very good position as it starts its tenth year of forward movement in July,” said Chris Rupkey, chief economist at MUFG in New York. “This strengthening economy gives the Federal Reserve the green light to raise rates a third time this year at their September meeting.” The Commerce Department said on Monday that retail sales increased 0.5 per cent last month. Data for May was revised higher to show sales rising 1.3 per cent instead of the previously reported 0.8 per cent gain.
May’s gain in retail sales was the largest since September 2017. Economists polled by Reuters had forecast retail sales rising 0.5 per cent in June. Retail sales in June increased 6.6 per cent from a year ago.
Excluding automobiles, gasoline, building materials and food services, retail sales were unchanged last month after an upwardly revised 0.8 per cent increase in May. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. Core retail sales were previously reported to have risen 0.5 per cent in May.
Given the upward revision to May’s data, the unchanged reading in core retail sales last month likely does not change views that consumer spending accelerated in the second quarter. Consumer spending, which accounts for more than two-thirds of US economic activity, braked sharply in the January-March period, growing at its slowest pace in nearly five years.
The dollar pared losses against a basket of currencies after the data, while stocks on Wall Street were flat. US Treasuries were lower, with the yield on the interest rate-sensitive two-year note rising to its highest level since August 2008. In addition to the solid retail sales data, a sharp narrowing of the trade deficit in April and May has also bolstered expectations of a strong GDP reading for the second quarter. Second-quarter growth expectations were also boosted by another report from the Commerce Department on Monday showing business inventories increased 0.4 per cent in May.
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