Retail Sales Beat Expectations, Easing Concerns About the Economy

Retail sales in July came in above expectations, the government reported Thursday, painting an optimistic picture of consumer spending that could ease concerns about the strength of the economy.

The better-than-expected results, pointing to continued economic sturdiness, drove stocks higher. The S&P 500 jumped more than 1% in midday trading, on track for its sixth daily gain in a row. The tech-heavy Nasdaq also rose.

Retail sales increased 1% in July from the previous month, the Commerce Department said, well above the 0.4% rise that economists were expecting. A bounce-back in auto sales as cyberattack-related disruptions faded probably intensified the jump in overall retail sales, analysts said. But sales excluding autos and gasoline, a calculation that can be more indicative of spending trends, also beat expectations, rising 0.4%.

Consumer spending is a key driver of the U.S. economy, accounting for roughly two-thirds of gross domestic product. The retail sales report, which is not adjusted for inflation, pointed to resilience in consumer spending and provided reassurance after recession fears — tied to weaker-than-expected employment numbers — catalyzed a market sell-off early this month.

Based on the “solid” retail sales data, consumer spending is on track for 3.5% growth in the third quarter, according to Kathy Bostjancic, the chief economist at Nationwide. That would propel overall economic growth to a healthy rate of more than 2% for the quarter, she wrote in a research note.

Many forecasters have been warning of an economic downturn since the Federal Reserve started raising interest rates two years ago to combat surging inflation. But the U.S. economy has consistently defied those expectations, with robust consumer spending powering a rapid and forceful recovery from the shock of the coronavirus pandemic.

The retail sales numbers are the latest in a string of data points this week that have allayed economic worries.

Walmart reported Thursday that sales in the latest quarter rose above analysts’ estimates. The company, which is the largest retailer in the United States, also raised its forecast for sales and profit for the year. The retailer’s shares were up more than 6% Thursday in midday trading, a big move for a company of its size.

Another reassuring data point Thursday: Unemployment claims for the week ending Aug. 10 fell from the week before, indicating resiliency in the job market.

Overall inflation was 2.9% in July on a yearly basis, the Bureau of Labor Statistics reported Wednesday, marking the first time inflation has dropped below 3% since 2021. Cooling inflation has solidified investors’ predictions that the Fed will start lowering interest rates next month.

“More data like this could ease concerns that the economy is tilting toward recession, and take pressure off the Fed to cut rates more aggressively than they’d like to,” said Chris Larkin, head of trading and investing at E-Trade.

It all adds up to “an extremely positive environment for the stock market,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance.

This article originally appeared in The New York Times .