US retail sales were unexpectedly flat last month, as Americans cut back on discretionary spending, pointing to a moderation in consumption that could temper expectations of a sharp pickup in economic growth in the third quarter.
Other data on Friday showed that producer prices recorded their biggest drop in nearly a year last month amid declining costs for services and energy goods. Cooling consumer spending and tame inflation suggest the US Federal Reserve is unlikely to raise interest rates anytime soon despite a robust labor market.
“[US] Fed members are afraid to come out from under their rocks until growth is sustainably solid and inflation in, near or at their target, and today’s reports don’t provide them with any comfort that will happen soon,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.
The unchanged retail sales reading followed an upwardly revised 0.8 percent increase in June, the US Department of Commerce said.
Retail sales in June were previously reported to have increased 0.6 percent. Sales rose 2.3 percent from a year earlier.
Excluding automobiles, gasoline, building materials and food services, retail sales were also unchanged last month after rising 0.5 percent in June. These so-called core retail sales correspond most closely with the consumer spending component of GDP.
Economists had forecast overall retail sales rising 0.4 percent and core sales climbing 0.3 percent last month.
Some cautioned against reading too much into the latest data, citing a labor market that is at or near full employment and said they expected sales to bounce back this month.
Separately, the US Department of Labor said its producer price index for final demand dropped 0.4 percent last month, the first decline since March and the largest since September last year. It increased 0.5 percent in June.
In the 12 months through July, the producer price index slipped 0.2 percent. That was the biggest drop since December last year and followed a 0.3 percent increase in the 12 months through June.
A strong US dollar and cheaper oil continue to keep price pressures muted, leaving inflation running persistently below the US Fed’s 2 percent target. US Fed officials have repeatedly expressed concern about low inflation.
While Friday’s data suggested consumer spending was cooling after the second quarter’s brisk 4.2 percent rate of increase, economists still expected growth in consumption to top a 2.5 percent pace in the current quarter.
Strong labor market gains as well as rising home and stock market prices should underpin spending. The economy created a total of 547,000 jobs in June and last month.
A third report showed consumer sentiment was stable in early this month, though households’ views on income softened a bit. Most of the weakness was among younger households who cited higher expenses than anticipated, according to the University of Michigan’s preliminary consumer sentiment survey.
Americans are facing rising rents and healthcare costs.
Following the retail sales report, the Atlanta Fed lowered its third-quarter GDP growth estimate by two-tenths of a percentage point to a 3.5 percent rate.
Growth is expected to be driven by a rebound in inventory investment, as well as consumer spending.
A fourth report from the US Department of Commerce showed businesses made significant progress in June in their efforts to reduce an inventory overhang that has weighed on economic growth since the second quarter of last year.
The inventory-to-sales ratio fell to a seven-month low of 1.39 months in June.
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