Anne D’Hynenzio from Apsociate Press Business Writer
WASHINGTON (AP) — Consumers won spending in June after an early pullback despite fears over tariffs and the state of the US economy.
Retail sales rose 0.6% more than expected in June, the Commerce Department said Thursday after a second consecutive month of spending declines, a 0.1% pullback in April and a 0.9% slowdown in May.
At the beginning of the year, strong retail sales were driven by car sales as Americans tried to preempt President Donald Trump’s 25% obligations on imported cars and auto parts.
Unstable spending is also occurring during mixed-signals on the economy. The US economy shrunk at a rate of 0.5% per year from January to March, but the US job market is extremely resilient, with key tariffs continuing to be postponed.
Americans continue to spend their time in that environment with an emphasis on essentials rather than electronics or new appliances.
However, consumers have not stopped spending on non-essential products. Barometers of restaurant sales, the sole service components within the Census Bureau report, and discretionary spending rose moderately.
“Consumers only feel modest pressure from tariffs, and the weakness here is not very effective in forcing them to pull back more discretionary spending areas such as restaurants and bars,” writes Richard de Chazal, a macro analyst at William Blair.
But Chazal fears the administration may pick up false assurances from strong consumer spending. Consumer sentiment and markets fell after aggressive tariff announcements.
Retail sales in June saw a 1.2% increase in automotive and automotive parts sales. Expenses expanded in most major categories such as clothing and personal care. According to the Ministry of Commerce, excluding automobiles and auto parts, sales rose 0.5%
Clothing and accessories sales rose 0.9%, while health and personal care sales saw bumps of 0.5%. Online retailers recorded a profit of 0.4%.
Electronics and appliance retailers, furniture stores and department stores all experienced lower sales.
Sales categories that exclude volatile sectors such as gas, cars and restaurants have increased by 0.5% from last month. This figure is fed into the Bureau of Economic Analysis’s Consumer Affairs estimates, indicating that consumers are still spending on discretionary items.
Heatherlong, chief economist for the Navy Federal Credit Union, noted that layoffs remain low and that consumers are confident enough to make the economy move wildly.
“Please don’t count American consumers yet,” Long said in a statement. “There is still a lot of concern about tariffs and potential price increases, but consumers are happy to buy if they feel they can do a fair deal. The economic summer word is resilient.”
Retail sales reports arrive in the madness of tariff whipping on and off. For businesses, this has made supply and inventory management difficult. When Americans shop, they focus more on essentials.
The latest government report showed inflation has risen to its highest level last month since February as Trump’s drastic tariffs pushed up everything from food and clothing to furniture and appliances.
Consumer prices rose 2.7% in June last year, the Labor Bureau said Tuesday, up from a 2.4% annual increase in May. Monthly, prices rose 0.3% from May to June after only 0.1% in the previous month.
Trump has insisted that the US is virtually free of inflation as he tried to pressure Federal Reserve Chairman Jerome Powell to cut short-term interest rates.
However, the new inflation numbers make central banks more likely to leave interest rates. Powell said he wants to measure the economic impact of Trump’s tariffs before cutting borrowing costs.
Americans continue to spend.
One big litmus test was Amazon’s four-day prime event, along with competing retail sales from Walmart and Target, which kicked off last week. Adobe Digital Insights, which tracks online sales, reported sales events accelerated $24.1 billion in online spending, up 30.3% compared to the same period last year.
Still, based on an analysis of Amazon Prime orders, Consumer Data Provider’s analysis showed that they were buying prioritized essentials such as Dish Soap and Paper Products rather than buying big tickets.
Deborah Weinswig, founder and CEO of CoreSight Research, said he has become optimistic about consumer financial health after the Amazon Prime event. She said inventory was on a healthy level and no major fire sales were seen.
“People aren’t buying things they don’t need,” she said. “I think it’s a healthier retail environment.”
Retailers are now paying attention to the shopping season when they return to school. This is the second largest consumer rush after winter break. CoreSight Research estimates that total US expenditures will increase by 3.3% compared to the same period last year. And shoppers expect to do most of their shopping before August and pre-empt tariffs.
Economists will also analyze quarterly financial reports from major retailers such as Walmart, Target and Macy’s next month to measure consumer behavior and how businesses navigate periods of global trade that have become more chaotic than fluid US policies.
Levi Strauss & Co. said last week that it is cutting back on creating unsold styles and target price increases as it moves production away from China due to tariffs.
