US Consumer Spending Remains Surprisingly Resilient

Consumers appear to still have more spending left in them, despite market watchers anticipating a sales slowdown in the second half of 2024.

Many economists expected U.S. consumers to begin to take a breather and slow down on their purchases in June. But today’s retail sales report showed spending was unchanged. The Census Bureau also updated its results for May, moving its sales data higher by 20 basis points to now reflect a 0.3% rise when compared with the prior month.

“Don’t count the U.S. consumer out just yet,” wrote Scott Anderson, BMO Capital Markets chief U.S. economist.

Consumers Showing More Life than Predicted

Strong retail sales helped the economy perform better than expected in 2023 helping dodge a recession. It has kept up a healthy pace so far in 2024, despite worries that a slowdown was in store for the second half of the year. 

However, some economists are now asking if consumers are set to keep spending. 

“There has been some concern about the economy and the consumer over the last few months, and while this is just one data point, it will help dispel the belief that consumers are feeling too much heat,” wrote Bret Kenwell,  U.S. investment analyst at eToro.

Sales have the potential to rise further as a fluke depressed motor vehicle sales, economists said. 

“Motor vehicle sales were likely held back artificially last month as a major cyber attack on auto dealer computer systems required sales to be recorded manually, introducing lags in recording that will be made up in July,” BMO’s Anderson wrote.

Continued Sales Will Boost Economic Growth

The parts of the retail sales report used in calculating gross domestic product (GDP), which economists call the control group, came in even stronger, up 0.9% in June. That measurement strips out components like motor vehicle sales, gasoline, restaurants and building materials.

That growth, paired with a downshift in inflation, could mean that GDP growth will be higher than expected, wrote Ben Ayers, senior economist for Nationwide.

Stronger spending is good for the economy, and it’s unlikely to create too many worries with the Federal Reserve, which is widely expected to cut interest rates at its Sept. 18 meeting. 

“Resilient economic growth allows the Fed to focus on controlling inflation as they set interest rate policy,” wrote Bill Adams, Comerica Bank chief economist.