Consumer Spending Surpasses Expectations in June
Retail sales in the United States bounced back in June, easing concerns that new tariffs under President Trump’s administration are denting consumer confidence. According to data from the Census Bureau, headline retail sales rose 0.6% month over month, outperforming economists’ expectations of a 0.1% gain. This follows a revised 0.9% decline in May.
The performance of the control group — a measure that excludes volatile categories like gas, autos, and building materials — also exceeded forecasts. This group, which contributes directly to GDP calculations, increased 0.5% in June compared to a 0.2% rise in May. Economists had anticipated only a 0.3% uptick.
Excluding auto and gas sales, retail activity gained 0.6%, doubling the expected 0.3% increase. June’s boost was driven in part by a 1.8% surge in miscellaneous store sales and a 1.2% jump in vehicle and parts dealers. The data suggests consumers are still spending steadily despite concerns over inflation and global trade.
Economists See Resilience Amid Tariff Environment
Analysts viewed the data as a sign of consumer resilience in the face of rising geopolitical and economic pressures. Capital Economics’ North America economist Thomas Ryan said the strong figures should “dispel any fears that overall consumer spending is faltering in response to tariffs.” Nationwide senior economist Ben Ayers noted that steady income growth and delayed price impacts from tariffs are continuing to support consumption.
However, while second-quarter GDP is expected to benefit from this rebound, economists warn that the outlook for the second half of the year remains uncertain. Concerns around escalating trade tensions and potential tariff fallout could weigh on future household spending. Still, for now, consumer demand appears stable.
Labor Market Maintains Stability
The positive retail data was accompanied by solid labor market indicators. The Department of Labor reported 221,000 initial jobless claims for the week ending July 12, the lowest level in three months. After a slight rise in claims during May, recent figures suggest a return to labor market stability.
Job growth remains steady even as businesses adjust to shifting trade dynamics. With unemployment claims decreasing, there’s renewed optimism that household income will continue to support spending levels through the summer, cushioning any potential slowdown in economic momentum.
Federal Reserve Policy Expectations Remain in Flux
Despite signs of strength in consumer and labor data, expectations for interest rate cuts by the Federal Reserve are beginning to temper. Investors are now pricing in a 54% probability of a rate cut by the September meeting, down from 70% the previous week, according to the CME FedWatch Tool.
Sticky inflation data earlier this week contributed to the shift in sentiment. While economic fundamentals such as retail sales and employment suggest growth, persistent inflation pressures may limit the Fed’s willingness to ease policy in the near term. Markets will likely remain volatile as investors balance strong consumer indicators with broader macroeconomic risks.
