Aug 15, 2023 - Economy

Summer spending surge

Illustration of a dollar-sign shaped wave on a beach shore

Illustration: Sarah Grillo/Axios

Earlier this year, U.S. consumers looked to be losing steam. But that was a head-fake: Shoppers have revved up spending, a sign that the U.S. economy might be picking up steam.

Why it matters: The resilient American consumer continues to support economic activity. Alongside disinflation, which has finally allowed for real wage gains, it may help boost spending.

What they're saying: The data is a "strong start to consumer spending for the third quarter as the economy shifts into a faster gear rather than hit the brakes," Ben Ayers, a senior economist at Nationwide, wrote in a note this morning.

  • "Rapid wage increases continue to boost consumer spending power, helping to extend the expansion but also raising the specter of lingering inflation," he adds.

By the numbers: Retail sales soared by 0.7% in July, a bigger burst of spending activity than economists anticipated. It is the strongest monthly figure since January, when sales soared by nearly 3%.

  • June's data increased by an upwardly revised 0.3%. The data is not adjusted for inflation.

Details: Last month's strong spending came as consumers spent more at online retailers (+2%, helped by Amazon Prime Day), restaurants (+1.4%), sporting goods stores (+1.5%) and clothing shops (+1%).

  • Consumers did pull back on bigger-ticket items, including furniture (-2%), and cars and auto parts (-0.3%).
  • Control retail sales — which feeds into gross domestic product calculations and strips out volatile components including autos, gas and building materials — rose by 1% in July after a solid 0.6% gain in June.

The intrigue: The yield on the two-year Treasury note, which is sensitive to changes in expectations around what the Fed will do, jumped after the release of the data. It briefly topped 5% before moving back.

  • "For a Federal Reserve seeking to better balance demand with supply, the retail sales report is not good news as consumer spending growth appears to have started the third quarter at a very strong pace," economists at Brean Capital wrote this morning.

The bottom line: Even after more than a year of aggressive rate increases by the Fed, robust consumer spending continues to lift the economy. The big question is how much longer that will carry on.

  • "Reduced excess savings, the resumption of student loan payments, and tight credit conditions will further weigh on households' budgets even if rapidly falling inflation should provide a tailwind to real wages," EY-Parthenon chief economist Gregory Daco noted.
Go deeper