Consumer spending in July exceeded expectations, with the Commerce Department reporting that inflation pressures were showing signs of easing. Advanced retail sales rose by 1% on a monthly basis, surpassing the forecasted 0.3% increase. June sales, initially reported as flat, were revised to a decline of 0.2%.
Excluding auto-related items, sales increased by 0.4%, higher than the expected 0.1% rise. Initial unemployment benefit claims for the week ending Aug. 10 decreased to 227,000, down by 7,000 from the previous week and below the estimated 235,000.
Sales growth was driven by increases at motor vehicle and parts dealers (3.6%), electronics and appliance stores (1.6%), and food and beverage outlets (0.9%). However, miscellaneous retailers saw a decline of 2.5%, while gas stations and clothing stores experienced minimal growth or declines.
Following the release of the data, stock market futures and Treasury yields saw significant increases. Analysts noted that the U.S. consumer continues to surprise positively, indicating a strong consumer base.
Inflation eased slightly in July, with consumer prices rising by 0.2% on the month and an annual inflation rate of 2.9%, the lowest since March 2021. Wholesale prices also saw modest increases, with import prices rising by 0.1% in July and 1.6% year-over-year.
Despite inflation remaining above the Federal Reserve’s target, there are signs of easing price pressures. The Fed is expected to respond with its first rate cut in over four years at its upcoming September meeting, with a focus on a measured approach to cuts due to the resilient consumer base.
Walmart reported strong earnings and sales for the previous quarter, reflecting a stable consumer environment. Investors anticipate the Fed shifting focus from inflation to broader economic conditions, including potential weaknesses in the labor market.
Other economic indicators showed mixed results, with manufacturing data indicating a wobbling trend. The New York Fed’s Empire State Manufacturing gauge improved slightly but remained negative, while the Philadelphia Fed manufacturing measure dropped to its first negative reading since January.
Industrial production declined by 0.6% in July, below the forecast, with Hurricane Beryl impacting the total. Capacity utilization also fell to 77.8%, lower than the estimated 78.5%.
