Retail sales rose 1 percent in June after May dip

Retail sales picked back up in June after falling in May in the face of rapid price increases, according to data released Friday by the Census Bureau.

U.S. retailers, restaurants and bars made $680.6 billion in sales last month, up 1 percent from a May total of $673.9 billion. Retail sales figures are adjusted for seasonal shifts in consumer spending, but not inflation.

Retail sales beat economists’ expectations for June after falling 0.1 percent in May. While inflation has remained high and rising for more than a year, consumers have powered through price hikes and their own deepening concern about the future of the economy to keep spending more money.

Spending on retail and food services is up 8.4 percent, the Census Bureau said, over the past 12 months as consumer prices rose 9.1 percent in the same time, according to Labor Department data. But consumer spending habits have shifted notably as households adjust to rising prices.

“Today’s retail sales numbers reveal how consumers are continuing to absorb higher prices in non-discretionary categories like gas, and deferring purchases in categories like appliances,” said Claire Tassin, retail and commerce analyst at Morning Consult, in a Friday analysis.

Sales at gasoline stations were up 3.6 percent in June and a staggering 49.1 percent over the past year due largely to the steep rise in oil prices that began late last year. The war in Ukraine and economic sanctions on Russia have also sent prices for oil products soaring through most of 2022, with gasoline prices peaking near a national average of $5 last month.

Spending at restaurants and bars rose 1 percent last month and is up 13.4 percent on the year as Americans gravitate slightly more toward experiences they missed during the depths of the COVID-19 pandemic. Steadily rising food prices and wages in the hospitality sector have also fueled higher sales figures.

Consumer spending in other areas of the economy fell as households adjusted to rising gas prices.

Sales at clothing and clothing accessory stores dropped 0.4 percent in June and are down 0.2 percent on the year. Building material and garden store sales fell 0.4 percent last month, and department store spending fell 2.6 percent.

Spending at electronics and appliance stores budged up 0.4 percent last month, but is down 9.1 percent on the year.

“Declines in apparel and department store spending indicate that consumers are tightening their belts in some areas as they manage through this difficult period,” Tassin said.

The resilience of retail spending amid high inflation is a mixed bag for the U.S. economy.

Economists say the strength of overall consumer spending could help propel the U.S. through a potential downturn later this year or in early 2022, especially as the Federal Reserve ramps up interest rates to fight inflation. Consumer spending tends to slow as the Fed hikes rates, so reaching a higher baseline as rates get higher may be an encouraging sign for the economy.

Even so, rising retail spending may add further fuel to inflation and work against the Fed’s goal of bringing down demand for goods and services already in short supply. Inflation itself is also driving some of the increase in retail sales figures, which means households may not be as financially steady as they might seem.

“The Fed may welcome these signs, as softening domestic demand will eventually help to slow price growth. But until we see more noticeable signs that inflation has plateaued (most likely at the end of the third quarter) we expect the Fed to maintain its aggressive approach to tightening,” said Cailin Birch, global economist at the Economist Intelligence Unit.