U.S. retail sales for June came in on the strong side, the Department of Commerce announced Tuesday. Although the report provies some ammo for those touting a U.S. recovery, economists still want to see a labour market recovery before they can exhale.

Headline retail sales rose 0.5% in June. Excluding autos, sales were even stronger, coming in 0.7% higher.

“However, several details take some steam out of the report,” says BMO Nesbitt Burns, “Building materials sales soared 2.6%. These sales mix contractors’ demand with consumer purchases and are probably not indicative of consumer spending growth. Gasoline bounced back 1.3% after big declines in price-related action. Sporting goods, hobby and book stores jumped 3% – thanks to Harry Potter.”

“The underlying trend at department stores remained up, but moderate. General merchandise sales were up 0.3%, sustaining a good 0.7% rise in May. That is a decent trajectory headed into the critical summer season, but not gangbusters,” cautions Nesbitt.

TD Bank says that, “Today’s report makes it clear that U.S. consumer spending remains extremely well supported, with more gains likely in the months to come. Last month’s Fed rate cut is likely to underpin sales of interest-rate sensitive durable goods, while a host of other factors – ranging from higher equity valuations, which should boost consumer confidence and consumer wealth, to the big dollop of tax relief that is being delivered this month – should boost overall spending.”

“The consumer sector has been the economy’s strong point and this report indicates a good Q2 result (real spending near 3% growth) was closed out in moderately positive fashion,” concludes Nesbitt. “The next question is whether the huge tax cuts now taking effect will power an even faster pace in the next few months.”

CIBC World Markets says that second quarter real consumer spending looks to have run at a 3.3% growth rate, with GDP a lot slower due to a big drag from net exports and inventories. “But we continue to view the borrow-and-spend mentality of the American consumer in the absence of any visible turnaround in labor markets,” it says.

TD agrees, noting, “Monetary and fiscal stimulus is no substitute for income and employment gains as an engine of consumer spending. Those job and wage gains have yet to materialize, and until they do, even a few quarterly bursts in consumer spending will do little to ease fears about the health of the U.S. economic recovery, in the absence of the long-awaited rebound in business investment — still the missing link so far.”

“Today’s retail sales report caps off second-quarter consumer spending on a good note and earmarks decent prospects for this segment of the U.S. economy heading into the third quarter,” says RBC Financial. “Still, there are some headwinds for the U.S. consumer to contend with, including the beleaguered state of the labour market. A lack of any meaningful improvement in this sector could increasingly call into question the sustainability of the expected bounce in economic growth in the second half of this year should consumer spending be held back by a lack of job growth.”

In other news, RBC reports that July marked the third consecutive month of favourable business sentiment for New York state manufacturers, “which also sets a positive tone for growth prospects in upcoming quarters”. It indicates that the general business conditions index remained strongly positive at 22.6 in July. “Beneath the headlines, new orders and shipments indexes remained strongly positive, but unfilled orders, delivery time and inventories indexes were all slightly negative. An improvement in business sentiment plus the still-in-the-game consumer are an encouraging sign for growth prospects over the second half of the year,” RBC says.