Retail sales for July came in better than anticipated, while a key gauge of consumer sentiment rose significantly in August.
Retail sales in the U.S. rose 1% in July from the previous month and 2.7% year-over-year, while consumer sentiment improved for August.
The results, compiled by the U.S. Census Bureau, were not expected, as economists had projected a 0.3% gain in retail sales last month. The higher than anticipated retail sales numbers also allayed fears of a slowing economy due to the Fed’s tightening of monetary policy.
The stock market surged higher on the news, as the S&P 500 was up 1.6% on Thursday, the Dow Jones Industrial Average climbed 1.4%, the Nasdaq Composite gained 2.3%, and the Russell 2000 jumped 2.5%.
It put the markets on the path to a winning week, as, through Thursday, the S&P 500 was up 3.7%, the Nasdaq Composite had gained 5.1%, the Dow jumped 2.7%, and the Russell 2000 rose 2.6%.
Retail sales see sharp rise in July
The July numbers follow a difficult month of June, when retail sales were down 0.2%, according to revised numbers.
Taking a deeper dive into the numbers, retail trade sales, which are the sale of goods by businesses to consumers, climbed 1.1% in July and gained 2.6% compared to July of 2023.
Non-store retail sales, including informercials, direct-response advertising, door-to-door sales, among others, surged 6.7%, while sales of food services and drinking places rose 3.4% for the month.
Also, total sales for the three months from May through July were up 2.4% from the same period a year ago.
In a research note, BofA Securities economist Aditya Bhave said the July retail sales numbers were consistent with the firm’s expectation for a soft landing. BofA maintains its stance that the Fed will cut rates twice this year, by 25 basis points in September and December.
Consumer sentiment rises
On Friday, retailers for more good news as the influential University of Michigan Consumer Sentiment Survey for August was better than expected.
The survey, which gauges the health of the economy from the consumer standpoint, came in at 67.8 in August, which was higher than estimates of 66.6 and above the July reading of 66.4.
The index of Current Economic Conditions dropped to 60.9, from 62.7 in July and 75.3 in August of 2023. This indicates a growing concern about the current state of the economy.
However, the Index of Consumer Expectations rose to 72.1, up from 68.8 in July and 65.4 in August of 2023. This indicates that consumers are becoming more hopeful about the economy, perhaps due to impending rate cuts, in the months and years ahead.
Consumers and politics
The University of Michigan report found that sentiment for Democrats climbed 6% after Vice President Kamala Harris replaced Joe Biden as the Democratic nominee for president. For Republicans, consumer sentiment fell 5% in August, while sentiment among Independents rose 3%.
The survey also showed that 41% believe Harris is better for the economy, while 38% say Trump is better for the economy. This marks a significant shift in sentiment, as between May and July, Trump had a 5% advantage over Biden on the economy.
Further, it found that expectations strengthened for both personal finances and the five-year economic outlook, which had its highest reading in four months.
“Survey responses generally incorporate who, at the moment, consumers expect the next president will be. Some consumers note that if their election expectations do not come to pass, their expected trajectory of the economy would be entirely different,” Joanna Hsu, the director of the Surveys of Consumers, said.
Finally, inflation expectations for the year ahead came in at 2.9% for the second straight month, while long-run inflation expectations came in at 3.0%, unchanged from that last five months. The inflation expectations are higher than the 2.2% to 2.6% long-term inflation range seen in the two years before the pandemic.
