Strong Retail Sales in June Boosted Growth

Many economists estimate the nation’s gross domestic product—a measure of output—expanded robustly in the second quarter. Ahead of Monday’s report, forecasting firm Macroeconomic Advisers projected growth had hit a 4.9% rate. After the report was released, the firm upped its forecast to 5.1%.

Consumer spending, including outlays on many services not tracked in Monday’s report, accounts for more than two-thirds of U.S. economic output.

Vehicle sales and higher gas prices helped drive sales up last month. Spending at health and personal-care stores also increased by the largest monthly margin in more than 14 years. Department-store sales, buffeted by online competition, fell 1.8%, the largest decline in more than two years.

Partly due to soft spending in the first quarter, GDP growth slowed to a seasonally and inflation-adjusted annual rate of 2% in January through March, according to the Commerce Department’s latest estimate. But spending picked up in recent months. Retail sales during the second quarter climbed 5.9% from the second quarter of 2017.

Gasoline prices rose swiftly earlier this year, but leveled off in June. The national average price for a gallon of regular gas in June was $2.89, down 1 cent from May but up 41 cents from December, according to the U.S. Energy Information Administration.

Gas-price fluctuations could have skewed the headline retail-sales number, which wasn’t adjusted for inflation. Gasoline-station sales rose 1% in June from the prior month.

Meantime, consumers are on track to spend $215 billion on new vehicles in the first half of the year, nearly $5 billion more than the first six months of 2017, according to J.D. Power. The retail sales report showed auto purchases rose 0.9% in June.

When excluding gasoline and autos, retail sales rose 0.3% from May. When excluding gas, cars, building supplies and food services—a gauge followed by economists because it feeds directly into quarterly GDP estimates—spending was flat in June, according to analysts. But spending growth was up 0.8% in May for this measure, again pointing to robust consumer demand.

Compared with a year earlier, overall sales were up 6.6% in June. Spending continued to outpace inflation, with the Labor Department’s consumer-price index rising 2.9% in June from a year earlier.

Tax cuts appear to be propelling robust consumer demand. Many households are experiencing less withholding from their paychecks thanks to the tax overhaul. David Berson, chief economist at Nationwide Mutual Insurance Co., an insurance company, said they are also reaping some benefits from a stronger business sector.

“Businesses are expanding as a result of tax cuts, hiring more workers, and solid job numbers are boosting consumer spending,” Mr. Berson said.

The low unemployment rate, which was 4% in June, and growing wages have buoyed consumer spending. Measures of consumer confidence have remained high in recent months, supported by continued job gains and broader economic growth.

Analysts think recent tariffs and trade actions by the U.S. and China could impact the economy in different ways, either by hitting consumers directly with higher prices or by draining profit margins if businesses choose to absorb price increases for the products they sell.

Author: Sharon Nunn at sharon.nunn@wsj.com