Retail sales rose a better-than-expected 0.6% in June, the Commerce Department said Thursday, after two consecutive months of spending declines — a 0.1% pullback in April and a 0.9% slowdown in May.
Earlier in the year, strong retail sales were driven by car sales as Americans attempted to get ahead of President Donald Trump’s 25% duty on imported cars and car parts.
The erratic spending is taking place during a period of mixed signals about the economy. The U.S. economy shrank at a 0.5% annual pace from January through March, but the U.S. job market is proving to be very resilient, and major tariffs keep getting postponed.
Americans continue to spend in that environment, with a heavy focus on necessities rather than electronics or new appliances.
Yet consumers haven’t stopped spending on nonessential goods. Sales at restaurants — the lone services component within the Census Bureau report and a barometer of discretionary spending — rose moderately.
“Consumers are only feeling a modest amount of pressure from tariffs, and any weakness here is not having much of an effect in forcing them to pull back on more discretionary areas of spending such as restaurants and bars,” wrote William Blair macro analyst Richard de Chazal.
Yet de Chazal fears the administration may be picking up false assurances from strong consumer spending. Consumer sentiment and markets have tumbled after aggressive tariff announcements.
Retail sales in June included a 1.2% gain in sales of autos and auto parts. Spending expanded across most major categories, including clothing and personal care. Excluding autos and automotive parts, sales rose 0.5%, according to the Commerce Department.
Clothing and accessories sales rose 0.9%, while health and personal care sales saw a 0.5% bump. Online retailers recorded a 0.4% gain. Autos and automotive parts dealers rebounded with a 1.2% increase.
Electronics and appliance retailers, along with department stores, both saw sales declines.
A category of sales that excludes volatile sectors such as gas, cars and restaurants rose 0.5% from the previous month. The figure feeds into the Bureau of Economic Analysis’s consumption estimate and is a sign that consumers are still spending on some discretionary items.
Heather Long, chief economist at Navy Federal Credit Union, noted that layoffs remain low and consumers are still confident enough that the economy is chugging along.
“Don’t count the American consumer out yet,” said Long in a statement. “There’s still a lot of trepidation about tariffs and likely price hikes, but consumers are willing to buy if they feel they can get a good deal. The word of the summer for the economy is resilient.”
The retail sales report arrives amid a whipsaw frenzy of on-and-off-again tariffs that have jolted businesses and households. For businesses, that has made it harder to manage supply and inventories. Americans are focusing more on necessities when they do shop.
The latest government report showed that inflation rose last month to its highest level since February, as Trump’s sweeping tariffs pushed up the cost of everything from groceries and clothes to furniture and appliances.
Consumer prices rose 2.7% in June from a year earlier, the Labor Department said Tuesday, up from an annual increase of 2.4% in May. On a monthly basis, prices climbed 0.3% from May to June, after rising just 0.1% the previous month.
Trump insists that the U.S. effectively has no inflation as he continues to pressure Federal Reserve Chair Jerome Powell into reducing short-term interest rates.
Yet the new inflation numbers make it more likely the central bank will leave rates where they are. Powell has said he wants to measure the economic impact of Trump’s tariffs before reducing borrowing costs.
Americans have continued to spend — which is what the Fed had hoped to curtail a little bit with rate hikes.
One big litmus test was Amazon’s four-day Prime event, along with competing retail sales from Walmart and Target that kicked off last week. Adobe Digital Insights, which tracks online sales, reported the sales events drove US$24.1 billion in online spending — a 30.3% increase compared with the same period last year.
Still, those who were buying prioritized essentials like dish soap and paper products over big-ticket purchases, according to consumer data provider Numerator, based on its analysis of Amazon Prime orders.
Deborah Weinswig, founder and CEO of Coresight Research, said she’s becoming more optimistic about the financial health of the consumer after the Amazon Prime events. She said inventories are at a healthy level and she didn’t see big fire sales.
“People aren’t buying things that they don’t need,” she said. “I think it’s a healthier retail environment.”
Retailers are now turning their attention to the back-to-school shopping season, the second-largest consumer rush after the winter holidays. Coresight Research estimates total U.S. back-to-school spending will increase by 3.3% compared with the same period last year, reaching US$33.3 billion. It also predicts shoppers will do a big chunk of their spending before August to get ahead of tariffs.
Economists will also dissect quarterly financial reports next month from major retailers like Walmart, Target and Macy’s, both for insight into consumer behaviour and to gauge how businesses are navigating a chaotic period of global trade due to fluid U.S. policies.
Levi Strauss & Co. said last week it was cutting back on making styles that aren’t selling and introducing targeted price increases as it moves production away from China due to tariffs.