Key Points

  • U.S. retail sales rose 0.6% month-over-month in June, ending two consecutive months of declines, despite consumer concerns about the job outlook and the possibility that the highest tariffs since the 1930s could push up inflation and weigh on economic growth.
  • Sales increased in 10 of 13 retail categories, including motor vehicles, food and beverages, and building materials; sales at furniture stores, gas stations, and electronics and appliance stores declined. The data comes from a report released by the U.S. Census Bureau on Thursday (July 17).
  • The outlook for overall household spending in the coming months is uncertain, as import tariffs could push inflation further above the Federal Reserve's 2% target. San Francisco Fed President Mary Daly said Thursday: "This is visible in consumer confidence surveys; consumer spending will slow more gradually than before, but it will not fall off a cliff."

Deeper Analysis

Daly is one of several Fed officials who have recently warned about tariff-induced price pressures. Data released Tuesday by the U.S. Bureau of Labor Statistics showed the June Consumer Price Index (CPI) rose 2.7% year-over-year, up from 2.4% in May. Imported goods led the increase, with clothing prices up 0.4%, and household goods and appliances up 1% and 1.9%, respectively.

New York Fed President John Williams said Wednesday: "Although only modest effects of tariffs are visible in the hard aggregate data so far, I expect these effects to intensify in the coming months." In his remarks, he predicted that import tariffs could add about 1 percentage point to inflation in the second half of this year and the first half of next year.

Williams also noted that the New York Fed's June Survey of Consumer Expectations showed above-average economic uncertainty, "leading many households to scale back expected growth in spending on non-essentials." Looking ahead, "I expect uncertainty and tariffs to dampen spending," he said, forecasting U.S. economic growth to slow from 2.8% in 2024 to about 1% this year. Consumer spending accounts for nearly 70% of gross domestic product (GDP) growth.

The Atlanta Fed estimated Thursday that second-quarter GDP growth could be 2.4% at an annualized rate, down from its July 9 forecast of 2.6%. Williams said concerns about tariffs have already dampened business investment, "In short, concerns about tariffs are widespread, leading to a pullback in capital spending." He predicted that by December, the unemployment rate will rise to 4.5% from 4.1% in June, and inflation will rise to between 3% and 3.5%.

Fed Governor Adriana Kugler said Thursday: "There are many reasons to believe that the larger inflationary effects of tariffs have not yet materialized." She explained that many companies stockpiled imported goods ahead of the tariffs in early 2025, avoiding immediate price increases; they may delay passing on higher import costs to consumers until the Trump administration clarifies tariff levels. Kugler said in her remarks: "Companies, especially large ones, may also be waiting to grab market share from competitors that raised prices earlier."