Forecasters hand-wring over tariffs, but the economy's still doing fine
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American consumers are spending freely, unemployment filings are low and executives feel more optimistic about business prospects.
Why it matters: A trade war-stunted economy remains something forecasters hand-wring about, but it's not the reality on the ground.
- Economic activity wrapped the second quarter on stronger footing, with consumers spending plenty after a tariff front-loading shopping spree earlier this year.
- It doesn't look like an economic boom time, but it's also not the stagnation that looked possible just months earlier.
Driving the news: Retail sales, which aren't adjusted for inflation, rose by 0.6% in June — more than double the increase that economists anticipated.
- That came after a sharp pullback in May, when retail sales fell by nearly a full percentage point. It raised fears about a heightened sense of caution among consumers.
- Spending increased in all but three categories: department stores, furniture retailers and electronics stores. Sales at gasoline stations were flat.
- Miscellaneous retailers (a group that includes florists, pet supply stores and more), auto dealerships and home improvement stores saw the biggest increase in sales.
What they're saying: "Delayed tariff price increases and steady income growth continue to fuel spending despite weak survey data indicating building concerns by households," Nationwide senior economist Ben Ayers wrote in a note.
- "The strong June for retail sales should support a solid rebound for real GDP growth in the second quarter," Ayers added — but warned that "tariff uncertainty hangs over the outlook."
Zoom out: The data follows further confirmation that aggregate layoffs remain low, after a spike in filings earlier this year that stoked concern about weaker labor market trends.
- Filings for unemployment benefits fell by 7,000 last week to 221,000, the fifth straight week of declines.
- Survey results from the Philadelphia Fed district — including Delaware and parts of New Jersey and Pennsylvania — showed manufacturers anticipate more hiring and growth over the next six months.
The intrigue: The Atlanta Fed GDPNow reading shows 2.6% growth in the second quarter, helped by normalizing imports after a first-quarter rush.
Reality check: The economy is not out of the woods, especially as continued trade tensions threaten higher prices for consumers.
- The Philadelphia Fed survey showed forecasts for stronger activity came alongside expectations of higher prices paid and received.
- Import prices for consumer goods rose 0.4% in June, the largest one-month increase in over a year. That is before the tariff effect, for which the data does not account.
- Continued unemployment filings — that is, those collecting benefits for multiple weeks — rose to 1.96 million in early July, ticking up from the previous week, pointing to sluggish hiring for those who do lose their jobs.
