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News for August 14, 2022

Retail Sale Goes Up By 1% in June, Eases Recession Fears

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Consumers have picked up their purchases from May to June, emphasizing their resilience despite the high gas prices at the gas pump and in groceries and easing fears of a possible economic recession.

The Commerce Department said last Friday that U.S. retail sales increased by 1% in June from a revised decline of 0.1% in May.

The figures are not adjusted for inflation and largely reflect higher prices, specifically for gas. However, it also shows consumers are still providing crucial support to the economy and spending on discretionary items such as furniture, restaurant meals, and sporting goods, according to a report.

Meanwhile, last month’s spending gain is modest enough not to encourage the Federal Reserve to raise interest rates even more aggressively. Stock prices rose after the report’s release.

“People did not fold in the face of the Ukraine shock and the subsequent surge in food and energy prices,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics. “Instead, they ran down a small part of their pandemic savings in order to keep up their discretionary spending.”

On average, consumers still have significant savings bolstered by pandemic-era government relief checks and strong hiring and pay gains. JPMorgan executives said Thursday that their customers are still breaking out their credit and debit cards at a healthy pace.

Oxford Economics Chief U.S. economist Kathy Bostjancic said even without counting inflation in the research, retail sales still rose by around 0.3% in June, up from a contraction of 0.4% in May. 

She expects the economy to grow at a slim 0.5% annual rate in the April-June quarter after shrinking in the first three months of the year.

The report showed consumers’ ongoing appetite for non-essentials like gadgets and furniture. Sales at furniture stores rose 1.4%, while consumer electronics stores rose 0.4%. Online sales showed a resurgence, posting a 2.2% increase. Business at restaurants was up 1%. But department stores took a hit, posting a 2.6% decline.

The solid figures bold well for the back-to-school shopping season, the second largest sales period behind the winter holidays. Mastercard SpendingPulse, which tracks spending across all payment forms, including cash, forecasts that back-to-school spending will be up 7.5% from July 14 through Sept. 5 compared with the year-ago period when sales rose 11%.

Spending, however, is volatile. The latest round of retail earnings reports released in May showed some slowing in spending, particularly among low-income shoppers. Upscale furniture chain, RH, cut its sales outlook for the year last month, pointing to weakening macro-economic conditions.

The report cited higher mortgage rates, which are slowing sales of luxury homes, showing that even wealthy shoppers are pulling back.

Nevertheless, the overall solid spending came even as shoppers were confronted with high prices in all areas. U.S. inflation surged to a new four-decade high in June because of rising prices for gas, food, and rent, squeezing household budgets and pressuring the Fed to raise rates aggressively — trends that increase the risk of a recession.

The government’s consumer price index soared 9.1% in June compared with a year ago, the biggest yearly increase since 1981, with nearly half of the increase due to higher energy costs. Last month’s year-over-year consumer prices led to an 8.6% annual jump in May. From May to June, prices rose 1.3%, following a 1% increase from April to May.

Some economists believe inflation might be reaching a short-term peak. Gas prices, for example, have fallen from $5 a gallon reached in mid-June to an average of $4.57 nationwide Thursday — still far higher than a year ago.

Arie Kotler, chairman, president and CEO of Arko Corp., one of the largest operators of convenience stores in the U.S., believes that if gas prices keep decreasing, “people will have more money in their pocket to spend inside the store.” The chain, located mostly in rural and small towns, continues to offer deals on coffee and food, like $1.99 for a slice of pizza.

Accelerating inflation is a big problem for the Fed, too. In three decades, the central bank is already involved in the fastest series of interest rate hikes. It hopes to tame inflation by tamping down borrowing and spending by consumers and businesses.

The retail sales report covers about a third of overall consumer spending and doesn’t include services such as haircuts, hotel stays, and plane tickets.

This article originally appeared on AP News.

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Hi, you might find this article from Modern Campground interesting: Retail Sale Goes Up By 1% in June, Eases Recession Fears! This is the link: https://moderncampground.com/usa/retail-sale-goes-up-by-1-in-june-eases-recession-fears/