By CHRISTOPHER RUGABER, AP Economics Writer
WASHINGTON (AP) — Americans spent more at retail stores and restaurants in July, a sign that concerns over weakening economic growth and a persistent trade war that have roiled financial markets have yet to dampen consumer confidence.
Retail sales rose a healthy 0.7% last month after a 0.3% gain in June, the Commerce Department said Thursday. Online retailers, grocery stores, clothing retailers, and electronics and appliance stores all reported strong gains.
Consumer spending, the primary driver of the U.S. economy, appears healthy even as other sectors of the economy, such as business investment, have weakened amid growing uncertainty over the U.S.-China trade conflict. Job growth is steady, the unemployment rate is near a 50-year low, and wages are rising modestly, which bolsters Americans’ spending power.
“The consumer is playing Atlas, shouldering overall economic growth again in the third quarter,” said Diane Swonk, chief economist at Grant Thornton, a tax advisory firm. “The key is employment. That will ultimately determine how we weather the trade storm.”
Sales in a category that is mostly made up of online retailers jumped 2.8% last month, the largest increase since January. That figure was likely boosted by Amazon’s Prime Day sale for its members on July 15. Online sales have soared 16% in the past 12 months, compared to a 3.4% rise for overall retail sales.
A separate report showed that factory production declined 0.4% last month, continuing a string of negative readings, driven lower by falling output of autos, fabricated metals, and wood products. Manufacturing output has now fallen 0.5% in the past year.
Slowing global growth, particularly in Europe and China, has cut into exports of factory goods, and U.S. auto sales are weakening. Still, factories aren’t laying off workers and many analysts think the U.S. economy can still expand even as factories stumble.
“Underlying consumption growth remains strong, which should prevent the weakness in manufacturing and business investment from dragging the U.S. economy into recession any time soon,” said Michael Pearce, senior U.S. economist at Capital Economics, a forecasting firm.
Even department stores reported solid sales increases despite Wednesday’s anemic earnings report by Macy’s. Yet department store sales have declined over the past year. And Walmart, the world’s largest retailer, reported sales gains, lifted in part by brisk online grocery deliveries.
Thursday’s retail figures may allay some concerns about the potential for a recession that would end the 10-year U.S. recovery, the longest on record. The stock market plunged Wednesday after bond yields flashed warning signs of a downturn, with the Dow Jones industrial average tumbling 800 points, or 3%.
Worries about a recession have grown as President Donald Trump’s trade war with China has intensified. Companies cut back on spending in the April-June quarter, contributing to a slowdown in annual growth from 3.1% in the first quarter to 2.1% in the second.
Still, most economists aren’t forecasting recession, in part because consumer spending and the job market have remained strong.
Trump acknowledged this week that tariffs on Chinese imports could raise prices for American shoppers during the holiday season and delayed more than half his planned 10% tariffs on Chinese goods from Sept. 1 until Dec. 15. Trump cited the potential impact on holiday shopping as the reason for the delay.
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