Retail sales rose in July for a fourth consecutive month, showing the U.S. economy is breaking free of the effects of higher taxes and federal budget cuts.
The 0.2% increase followed a 0.6% gain in June that was larger than previously reported, according to Commerce Department figures issued today in Washington. The median forecast of 81 economists surveyed by Bloomberg called for a 0.3% advance. The measure of demand that feeds into gross domestic product climbed by the most this year.
Employment gains and rising household wealth tied to higher home values and stock prices are giving Americans the confidence to spend, triggering improving sales at companies such as Michael Kors Holdings Ltd. The pickup in household purchases would help counter the fiscal headwinds of taxes and government cutbacks that have held back the world’s largest economy.
“Consumers are still able to go out there and spend despite headwinds from tax increases and the sequester,” said Omair Sharif, a U.S. economist at RBS Securities Inc. in Stamford, Connecticut, which accurately forecast the growth in retail sales. “Job growth is continuing at a moderate clip and we’re making gradual headway.”
U.S. stocks were little changed, after the Standard & Poor’s 500 Index recorded two days of losses. The S&P 500 added 0.02% to 1,689.84 at 9:42 a.m. in New York. Treasury securities fell, sending the yield on the benchmark 10-year note up to 2.7% from 2.62% late yesterday.
Estimates in the Bloomberg survey ranged from a drop of 0.1% to a 0.8% gain. The reading for June was revised from an initially reported 0.4% increase.
Nine of 13 major categories showed gains last month, led by clothing and general merchandise stores.
Purchases excluding autos, gasoline and building materials, which render the figures used to calculate GDP, advanced 0.5% last month, the most since December, after increases of 0.1% in each of the previous two months.
Spending advanced 0.9% at clothing chains and 0.4% at general merchandise stores, today’s report showed.
Michael Kors Holdings, the luxury-goods company founded by the designer of the same name, this month reported first-quarter profit that topped analysts’ estimates amid surging North American sales. The Hong Kong-based Company said revenue in the quarter ended June 29 increased 54% from the same time last year. Revenue in North America, Kors’s largest region, rose 46%.
Sales at automobile dealers fell 1% after rising 2.9% the prior month, today’s report showed. The figures don’t always track the industry data used to calculate economic growth because they can be influenced by prices.
Cars and trucks sold at a 15.7 million annualized rate last month after a 15.8 million pace in June, the strongest back-to- back readings since the end of 2007, according to figures from Ward’s Automotive Group.
“There’s still significant upside potential for cars,” Carl Riccadonna, a senior U.S. economist at Deutsche Bank Securities Inc. in New York, said. “The volume of sales was so abnormally low over the past five years that there’s a lot of catch up to be done.”
Improving sales have led GM, Ford, Chrysler Group LLC, and Honda Motor Co. to boost capacity. Chrysler is adding almost 300 jobs at a Michigan engine plant and Honda will invest $215 million at facilities in Ohio.
“We’re at the beginning of a broad-based recovery for the economy in auto retail,” said Michael Jackson, chairman and chief executive officer of AutoNation Inc., in Fort Lauderdale, Florida. The largest U.S. auto-dealership group last month reported record earnings per share in the second quarter. “As we look at the rest of 2013, we believe that the improvement in new vehicle sales will continue,” Jackson said on a July 18 earnings call.
Today’s report showed some weakness in housing-related categories as sales at furniture, appliance and building material stores declined.
Areas showing gains included restaurants and bars, grocery stores and sporting goods outlets. Within general merchandise, department stores showed a 0.6% increase in sales last month, the biggest since March 2012.
The gains in consumer spending, which accounts for about 70% of the economy, are extending to restaurants including McDonald’s Corp. to shopping mall developers such as Rouse Properties Inc. in New York. Luxury goods makers also are rebounding, with LVMH Moet Hennessy, Louis Vuitton SA and Gucci- owner Kering SA last month reporting accelerating sales.