OUR THOUGHTS ON:

U.S. retail sales in June increase 6.6% year-over-year, leading to the continued rise in interest rates by the Federal Reserve for 2018

Retail

By Shane Burkholder

Boosted by increased purchases primarily of automobiles, retail sales during June in the United States rose steadily, affirming expectations for strong economic growth in the second quarter. The Commerce Department noted that retail sales increased 0.5% from May to June, which exceeded economist forecasts for the month. The 0.5% increase related mainly to retail sales of automobiles, gasoline, building materials and food services. Excluding the four previously mentioned environments, retail sales growth remained at a consistent 0.8%, as seen in the prior month.

These retail sales correspond closely with the consumer spending component of GDP, which accounts for two-thirds of the United States’ economic activity. Consumer spending has increased due to a variety of reasons; however, it seems that one of the main reasons behind the increased spending is the recent tax cuts seen in the United States.

The Federal Reserve has already raised interest rates twice in the current year, and due to the economy’s strong performance coupled with tightening labor markets (the unemployment rate was 4% in June) and firming inflation, the Fed is likely to continue to increase interest rates. The Federal Reserve has indicated that two more interest rate hikes are likely by the end of 2018.

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