US retail sales rose more than expected in July as households boosted purchases of motor vehicles and clothing, suggesting the economy remained strong early in the third quarter.
Other data yesterday showed worker productivity growing at its fastest pace in more than three years in the second quarter, but a drop in labour costs pointed to moderate wage inflation.
Strong domestic demand supports expectations the Federal Reserve will raise interest rates in September for the third time this year.
The Commerce Department said retail sales increased 0.5% last month.
But data for June was revised lower to show sales gaining 0.2% instead of the previously reported 0.5% rise.
Economists polled by Reuters had forecast retail sales nudging up 0.1% in July.
Retail sales in July increased 6.4% from a year ago.
Excluding automobiles, gasoline, building materials and food services, retail sales advanced 0.5% last month after a downwardly revised 0.1% dip in June.
These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.
Core retail sales were previously reported to have been unchanged in June.
Consumer spending is being supported by a tightening labour market, which is steadily pushing up wages.
Tax cuts and higher savings are also underpinning consumption.
July’s increase in core retail sales suggested the economy started the third quarter on solid footing after logging its best performance in nearly four years in the second quarter.
Gross domestic product surged at a 4.1% annualised rate in the April-June period, almost double the 2.2% pace in the first quarter.
While the economy is unlikely to repeat the second quarter’s robust performance, growth in the July-September period is expected to top a 3.0% rate.
The Fed increased borrowing costs in June and forecast two more interest rate hikes by December.
Prices of US Treasuries fell and the US dollar added slightly to gains immediately after the release of the data.
US stock index futures were trading lower.
Last month, auto sales rose 0.2% after edging up 0.1% in June.
Sales at clothing stores rebounded 1.3% after declining 1.6% in June.
Receipts at service stations increased 0.8%. Online and mail-order retail sales increased 0.8%, likely boosted by Amazon.com Inc’s “Prime Day” promotion.
That followed a 0.7% rise in June.
Americans spent more at restaurants and bars, lifting sales 1.3%. But receipts at furniture stores fell 0.5% and sales at building material stores were unchanged last month.
Spending at hobby, musical instrument and book stores declined further in July, falling 1.7%. In a separate report yesterday, the Labor Department said non-farm productivity, which measures hourly output per worker, rose at a 2.9% annualised rate in the April-June quarter.
That was the strongest rate since the first quarter of 2015.
Data for the first quarter was revised lower to show productivity increasing at a 0.3% pace instead of the previously reported 0.4% rate.
Economists had forecast productivity growing at a 2.3% rate in the second quarter.
Compared to the second quarter of 2017, productivity increased at a rate of 1.3%. The government also revised data going back to 1947, which did not materially change the picture of lacklustre productivity growth, though unit labour costs were stronger than previously estimated in 2017 because of upward revisions to hourly compensation.
The annual rate of productivity growth from 2007 to 2017 was revised up 0.1 percentage point to a rate of 1.3%. Unit labour costs, the price of labour per single unit of output, fell at a 0.9% pace in the second quarter. That was the weakest pace since the third quarter of 2014.
First-quarter growth in unit labour costs was revised up to a 3.4% rate from the previously reported 2.9% pace.
Labour costs increased at a 1.9% rate compared to the second quarter of 2017, pointing to moderate wage inflation.


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