By Lucia Mutikani
WASHINGTON, July 16 (Reuters) – U.S. retail sales rose slightly in June as lower gasoline prices weighed on receipts at service stations, but motor vehicle purchases accelerated and online spending surged, prompting economists to upgrade their second-quarter growth estimates.
The economy’s resilience was underscored by other data on Thursday showing labor market stability, with first-time applications for unemployment benefits dropping to a two-month low last week. The reports did not change views on near-term monetary policy. Economists believed the Federal Reserve would keep interest rates unchanged later this month.
They raised their gross domestic product growth estimates for the April-June quarter by at least two-tenths of a percentage point to as high as a 2.4% annualized rate. The economy grew at a 2.1% pace in the first quarter.
“Despite challenges, consumers are still spending and the labor market shows no signs of cracking,” said Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management. “This type of data won’t move the Fed’s needle either way, but it underscores the ongoing resilience of the U.S. economy.”
Retail sales rose 0.2% last month, the smallest gain in five months, after an upwardly revised 1.0% jump in May, the Commerce Department’s Census Bureau said. The increase in retail sales, which are mostly goods and are not adjusted for inflation, was in line with economists’ expectations and followed a previously reported 0.9% advance in May.
Sales rose 6.7% year-on-year in June, despite household budgets being strained by higher prices from import tariffs and more recently the Middle East conflict. Spending continues to be driven by higher-income households, which have seen their wealth boosted by a stock market rally.
Generous tax refunds this year have provided a cushion and consumers have been tapping into savings and seeking bargains. A “slow hire, slow fire” labor market is also generating a steady pace of wage growth, which is helping to sustain spending.
Initial claims for state unemployment benefits dropped 8,000 to a seasonally adjusted 208,000 for the week ended July 11, the lowest level since May, the Labor Department reported in a separate report on Thursday. Economists had forecast 217,000 claims for the latest week.
“While hiring has weakened from a strong start to 2026, the labor market remains stable,” said Kurt Rankin, a senior economist at PNC Financial. “Businesses themselves continue to enjoy solid consumer demand, requiring that they at least maintain existing staffing to meet demand.”
Stocks on Wall Street were lower. The dollar gained versus a basket of currencies. U.S. Treasury yields rose.
Receipts at service stations dropped 5.3% last month after increasing 2.6% in May, the retail sales report showed. Average gasoline prices fell to $4.18 a gallon in June from $4.61 in May, data from the U.S. Energy Information Administration showed.
ONLINE SALES PROMOTIONS WERE EARLY THIS YEAR
The modest relief at the pump, which reflected a retreat in oil prices as a shaky ceasefire between the United States and Iran took hold, freed money for spending elsewhere. But the truce collapsed last week and the renewed hostilities in the Middle East have sent oil and gasoline prices rising again.
Receipts at auto dealerships increased 1.9%. Sales at nonstore retailers surged 1.9%, boosted by Amazon’s four-day Prime Day event towards the end of the month. Other retailers also offered competing promotions. Economists, however, noted that the Prime Day promotion was a month earlier than usual, which they argued could have thrown off the model used by the government to strip seasonal fluctuations from the data.
Seasonal factors likely helped to boost the online sales data, they said.
“This likely implies payback for nonstore retailers during July and August, which would be accentuated by the fading boost from sales of World Cup apparel,” said Jonathan Millar, an economist at Barclays.
Electronics and appliance store sales increased 0.8%. Receipts at sporting goods, hobby, musical instrument and book stores jumped 1.3%. Sales at food services and drinking places, the only services category in the report, rose only 0.1%. Data for May was, however, revised to show these sales rising 1.2% instead of dipping 0.1%, likely catching a boost from the FIFA World Cup tournament.
Sales at building material and garden equipment outlets edged up 0.1%, while receipts at furniture stores were flat. Health and personal care store sales dropped 0.8%. There were also decreases in receipts at clothing, and food and beverage retailers. These declines could be either price cuts by retailers eager to attract customers or falling demand as consumers resist higher prices.
Retail sales excluding automobiles, gasoline, building materials and food services increased 0.5% in June after an upwardly revised 0.8% rise in May. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product, and were previously reported to have advanced 0.7% in May.
Economists estimated that inflation-adjusted consumer spending, which accounts for more than two-thirds of the economy, increased 0.4% in June. Their forecasts for the second quarter converged around a 2.5% pace. Consumer spending grew at a 0.5% rate in the January-March quarter.
With gasoline prices resuming their upward trend, the stimulus from tax cuts fading and the saving rate near four-year lows, economists are anticipating a slowdown in the third quarter. That possibility was flagged by the Fed’s Beige Book report on Wednesday, which described consumer spending as having edged up in early July, adding that “several districts noted declines in spending on discretionary items or trading down to more affordable varieties.”
“Higher inflation and moderating wage growth continue to squeeze household purchasing power,” said Lydia Boussour, senior economist at EY-Parthenon. “A growing number of consumers are dipping into savings and turning to credit to maintain spending … but it is becoming increasingly difficult to sustain, especially for lower-income households.”
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama, Andrea Ricci and Nia Williams)
By Lucia Mutikani | Reuters | © Copyright Thomson Reuters 2026.
