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Retail sales, manufacturing show firming economy

Retail sales, manufacturing show firming economy

ECONOMY:While the rise in retail sales lagged economists' expectations for a 0.6 percent increase, June's report added to signs of the economy's strengthening fundamentals, which could buoy optimism the recovery is on a self-sustaining path. Photo: Reuters

By Lucia Mutikani

WASHINGTON (Reuters) – A gauge of U.S. consumer spending rose solidly in June, in the latest sign that the economy ended the second quarter on a firmer footing.

That momentum appeared to have carried into the third quarter, with other data on Tuesday showing factory activity in New York state expanded sharply in July.

The Commerce Department said core sales, which strip out automobiles, gasoline, building materials and food services, increased 0.6 percent last month after rising by an upwardly revised 0.2 percent in May.

Core sales correspond most closely with the consumer spending component of gross domestic product. They were previously reported as being flat in May and economists had expected them to rise 0.5 percent in June.

U.S. stock index futures extended gains on the data, while prices for U.S. Treasury debt were little changed.

June’s gains and May’s upward revision suggested an acceleration in consumer spending in the second quarter after it was held back by weak healthcare spending in the first three months of the year.

A surprise drop in receipts for automobiles, however, saw overall retail sales rise only 0.2 percent in June after a 0.5 percent advance in May.

While the rise in retail sales lagged economists’ expectations for a 0.6 percent increase, June’s report added to signs of the economy’s strengthening fundamentals, which could buoy optimism the recovery is on a self-sustaining path.

The economy contracted sharply in the first quarter, but that was probably a temporary setback.

BRIGHTENING OUTLOOK

From employment to manufacturing, the economy appears to be firing on nearly all cylinders, with even housing regaining its footing after slumping in late 2013 following a run-up in mortgage rates. Growth estimates for the second-quarter top a 3.0 percent annual rate.

The steady run of fairly upbeat data, as well as slightly higher inflation readings, prompted Goldman Sachs to move forward its expectations for the first interest rate increase by the Federal Reserve to the third quarter of next year from the first quarter of 2016. The U.S. central bank, which is winding down its monthly bond purchasing program, has kept its benchmark interest rate near zero since December 2008.

In another report, the New York Fed said its Empire State general business conditions index jumped to 25.60 this month, the highest reading since April 2010, from 19.28 in June.

New orders edged up, while factory employment and shipments surged. The survey of manufacturing plants in the state is one of the earliest monthly guideposts to U.S. factory conditions.

Overall retail sales in June were restrained by a 0.3 percent fall in receipts at auto dealerships. The decline is surprising given automakers reported a surge in motor vehicle sales in June.

Auto sales had increased 0.8 percent in May. Excluding autos, sales grew 0.4 percent after rising by the same margin in May.

Sales at non-store retailers, which include online sales, increased 0.9 percent. Receipts at gasoline stations gained 0.3 percent, and sales at clothing retailers advanced 0.8 percent.

Receipts at sporting goods shops rose 0.6 percent and sales at electronics and appliances stores gained 0.1 percent.

But sales at building materials and garden equipment suppliers fell 1.0 percent.

(Reporting by Lucia Mutikani, additional reporting by Rodrigo Campos in New York; Editing by Meredith Mazzilli)

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