The numbers: Sales at U.S. retailers rose 0.7% in July and posted the biggest increase in six months, helped by strong Internet purchases on Amazon Prime Day.
Sales had been forecast to rise 0.4%, based on a Wall Street Journal poll of economists.
Retail sales represent about one-third of all consumer spending and usually offer clues on the strength of the economy.
The retail report has been less reliable as a bellwether since Americans have shifted more spending to services such as travel and recreation.
Yet the one major retail category involving services — restaurants — also showed another strong gain in July.
Key details: Sales at internet retailers jumped 1.9% to mark the second large gain in a row. Amazon
AMZN,
reported its biggest single day of sales ever on the first day of the two-day event.
Over the past year internet sales have risen 10.3%, more than double the rate of inflation.
Sales also rose a sharp 1.4% at bars and restaurants, a good omen for the economy.
Restaurant sales tend to rise when the economy is healthy and Americans feel secure in their jobs. Sales decline during times of economic stress.
Sales also rose at home centers, grocery stores, department stores and clothing stores.
Sales of new vehicles and auto parts, an up-and-down category, fell 0.3% last month. They have risen 7.6% in the past year. however.
Gasoline sales rose slightly.
Retail sales increased a stronger 1.0% when car dealers and gas stations are set aside, which gives a better idea of consumer demand.
Big picture: Retail sales have tapered off in the past year because of a shift in consumer spending patterns, but they are still rising fast enough to signal the economy is in good shape.
What’s helping households is an increase in real, or inflation-adjusted, incomes after a few years in which their wages fell behind. It hasn’t fully offset the negative effects of high inflation, however.
In any case, higher interest rates are likely to restrain consumer spending and the broader economy. The Federal Reserve might even be forced to raise rates higher if the economy is as strong as the July retail report suggests.
Looking ahead: “Never underestimate the American consumer? That was certainly the case in July,” said senior economist Jennifer Lee of BMO Capital Markets. “The Federal Reserve’s life just got a little more complicated.”
Market reaction: The Dow Jones Industrial Average
DJIA,
and S&P 500
SPX,
fell in Tuesday trades.
The yield on the 10-year note was little changed at 4.19%, but it was close to the highest mark this year. The strong retail report is seen as slightly boosting the odds of further rate hikes this year.
This story originally appeared on Marketwatch
