US retail sales rose unexpectedly in June, fueling hopes of a faster economic recovery ahead. Economists were expecting another decrease after the previous month’s drop.
Financial market participants were taken by surprise by the advance monthly sales for retail and food services. For June, US retail sales were expected to drop by -0.4%. Instead, retail sales increased 0.6%, a further sign that the broad economic recovery continues.
Retail sales show the health of consumer spending, the engine of economic growth. They reached $621.3 billion, an increase of $3.4 billion compared to the previous month, 18% higher than June 2020.
Retail Sales Remain above the Pre-Pandemic Trend
Three types of economic indicators exist – lagging, coincident, and leading. Out of the three, investors are always more interested in the forward-looking ones.
The retail sales indicator is a leading one and is the primary gauge of consumer spending. Without consumer spending growth, economic growth is difficult to achieve. Consumer spending data and habits offer a good overview of what’s happening in the economy and, when interpreted together with other economic indicators, allow traders to assess the overall economic strength.
While June data surprised markets positively, April-to-May data were revised to the downside, from -1.3% to -1.7%. Therefore, better-than-expected data for June were somehow offset by the previous month’s revision.
The markets reacted in line with the release. On the announcement day, the Dow Jones index rose above 35,000 points, only to be rejected and close lower at the end of the trading week.
Clothing and clothing accessories stores were up by 47.1% from June 2020, a sharp increase from the pandemic lows. Also, food services and drinking places were up by 40.2% compared to last year, as the economy reopened and people spent more time outside.
Excluding auto and gas, retail sales rose 1.15%, significantly better than the market expected. At this point, retail sales are 15% above the pre-pandemic trend, something that has never been seen before.