Retail sales and industrial production picked up in June, while inflation showed signs of firming
By BEN LEUBSDORF
Confident consumers and a stabilizing factory sector put the wind at the U.S. economy’s back as it entered the second half of the year.
A slew of reports Friday pointed to a healthy gain in retail sales, a pickup in industrial production and firming inflation last month. Overall growth appears to have rebounded solidly in the spring after a winter lull, and continued strength in household spending stands to propel the economy in the coming months.
The U.S. remains on a path of “OK growth—not great growth, but certainly enough to push the economy forward,” said Gus Faucher, deputy chief economist at PNC Financial Services Group. “The fundamentals continue to look good.”
Faster job gains, as reported last week, and rising inflation could prompt the Federal Reserve to consider raising short-term interest rates as soon as September; no action is expected at its late-July policy meeting.
But uncertainty continues to shadow the economic outlook in the wake of last month’s decision by the United Kingdom to leave the European Union. A closely watched gauge of consumer sentiment out Friday declined following the so-called Brexit vote, highlighting one of the concerns that might lead the Fed to remain in wait-and-see mode on rates.
“A September increase is still unlikely,” Mr. Faucher said, but the latest data make September “more likely than it was.”
Household spending accounts for more than two-thirds of U.S. economic output. The resurgent consumer sector was underlined this week when J.P. Morgan Chase & Co. reported that its total consumer loans excluding credit cards grew by 14% in the second quarter. Citigroup Inc. and Wells Fargo & Co. also reported growth in consumer lending.
“The trends that we see across the U.S. economy seem to be supporting good growth, and that’s certainly coming through in some of the volumes that we see for the credit business,” Brian Cassin, chief executive of credit-reporting agency Experian PLC, told analysts Thursday.
Wells Fargo Chief Executive John Stumpf said Friday that indicators “point to continued relative strength in the U.S. economy,” including a pickup in growth during the second quarter.
“Most of the improvement came from consumers, where drivers were broad-based,” he told analysts. “Spending on big-ticket items was especially robust, and sentiment surveys show that consumer confidence remains strong.”
Other bank executives report seeing similar trends.
“On the consumer side, it’s a little bit better every quarter,” U.S. Bancorp Chief ExecutiveRichard Davis told analysts Friday. “You can see consumers are now starting to spend again. Their savings have hit a level that they’re comfortable. They’re using their credit cards and they’re paying them back on time and getting rewards for it.”
Sales at U.S. retailers and restaurants rose a seasonally adjusted 0.6% in June and were up 2.7% from a year earlier, the Commerce Department said Friday. Spending rose broadly across most categories, led by the largest one-month jump in sales at building-supply stores in more than six years.
Data can be volatile from month to month. But across the second quarter, total retail sales were up a robust 1.4% compared with the first quarter. In the first six months of 2016, overall sales were up 3.1% over a year earlier, comfortably exceeding the rate of inflation.
Friday’s report showed American consumers have continued to shift their spending from brick-and-mortar retailers to online-shopping platforms such as Amazon.com. Sales at so-called nonstore retailers rose 10.6% in the first half of 2016 from a year earlier, while department-stores sales fell 3.8%.
San Francisco-based jeans maker Levi Strauss & Co. earlier in the week said it was focusing on international markets and selling its products directly to consumers.
“The traditional department store channel is and has been challenged, and that’s a big chunk of our business in the U.S.,” Chief Executive Chip Bergh said.
A potential warning sign on the economy came from the University of Michigan, which reported Friday that its consumer-sentiment index dropped to 89.5 in July, down 4.3% from the previous month. The decrease, concentrated in growing concern among high-income households, may have reflected stock-market fluctuations and widespread uncertainty in the wake of the June 23 Brexit vote.
“While stock prices quickly rebounded, an underlying sense of uncertainty about global prospects as well as the outlook for the domestic economy have not faded,” said Richard Curtin, the survey’s chief economist.
Still, most economists think Brexit will likely have minimal impact on the U.S. economy.
In another sign of underlying improvement in the economy, inflationary pressures appear to be firming after years of unusually sluggish price growth. The consumer-price index increased a seasonally adjusted 0.2% in June from the previous month, the Labor Department said, its fourth consecutive monthly rise.
Prices excluding food and energy climbed 2.3% in June compared with a year earlier, matching the strongest annual growth in core inflation since May 2012. Fast-rising rents were a major contributor, with shelter costs up 3.5% on the year—the strongest annual rise since September 2007.
U.S. inflation has fallen short of the Fed’s 2% annual target for the past four years. The central bank prefers to use a different gauge, the Commerce Department’s personal-consumption expenditures price index. In May, PCE prices were up 0.9% from a year earlier and core prices rose 1.6% on the year.
One of the economy’s sore spots continued to heal last month. The manufacturing sector has been hit hard by low oil prices, which have pinched the domestic energy industry, and by a strong dollar that has made U.S. exports more expensive for foreign customers. Overall industrial production, including utility and mining output, rose a seasonally adjusted 0.6% in June, the largest jump in nearly a year, the Fed reported Friday.
The index was lifted by a 2.4% monthly rise in utilities production as many Americans turned up the air conditioning; last month was the warmest June on record for the 48 contiguous U.S. states, according to the National Oceanic and Atmospheric Administration. Factory output rose by 0.4%, reflecting a jump in motor-vehicle production.
The industrial economy remains weak, with total production down 0.7% over the past year and manufacturing output up a modest 0.4% in June from a year earlier. Still, the sector appears to have stabilized in recent months.
Overall, economists estimate U.S. growth picked up briskly in recent months. The broadest measure of goods and services produced across the economy, gross domestic product, expanded at a modest 1.1% annual rate in the first quarter. On Friday, forecasting firm Macroeconomic Advisers projected GDP growth at a 2.5% pace in the second quarter followed by a 2.3% growth rate in the third quarter.
The Atlanta Fed’s GDPNow model on Friday pegged the second quarter’s growth rate at 2.4%. An alternative estimate produced by the New York Fed estimated the second quarter’s growth pace at 2.2% and the third quarter’s at 2.6%.
The Commerce Department will release its first official estimate for second-quarter GDP later this month.
—Jeffrey Sparshott, Anna Louie Sussman and Josh Mitchell contributed to this article.
Write to Ben Leubsdorf at [email protected]
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