The US Commerce Department reported Tuesday that retail sales rose for the first time in four months in July, fueling optimism that consumer spending may bring faster economic growth in the third quarter. The report showed a 0.8 percent increase in retail sales overall, as demand picked up in a broad range of categories including autos, electronics and apparel. The gain was the first since February and more than double the 0.3 percent gain expected by economists in a recent Reuters poll.
The report affirms the assertions of many well known economists, including Federal Reserve chairman Ben Bernanke, that the slowdown in economic growth seen during the second quarter will be temporary. It also comes as good news to President Barack Obama as he seeks reelection in November, as Republican Presidential hopeful Mitt Romney is basing his campaign primarily on the state of the economy. Of course, Obama's is still struggling to affect improvement in the labor market, as the unemployment rate rose to 8.3 percent in July.
The effect of Tuesday's retail sales report on stock markets was negligible with all three indexes holding on to slight gains with just minutes left in the trading day. While investors are certainly appreciative about good news for the economy, they were also dismayed that the report would likely reduce the odds that the Fed will launch a third round of quantitative easing.
July's retail sales gains came in just about every segment. Sales of automobiles and parts rose 0.8 percent, while the so-called core prices, a measure that excludes autos and other transportation related products, rose 0.9 percent. It was the biggest gain the core index since January. Sales at electronic and appliance stores also rose 0.9 percent, while receipts at gas stations surged 0.5 percent.