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Retail sales make July jump, aided by autos, restaurants

August 13, 2015

Americans bought more cars, restaurant meals and building supplies in July, a rise in spending that points to better economic growth anchored by an improving job market.

Retail sales climbed 0.6 percent last month after a flat reading in June, the Commerce Department said Thursday.

July's increase suggests that the combination of solid hiring and cheaper gasoline is contributing to rising consumer confidence and spending after a muted start to 2015. Greater retail sales could help boost overall economic growth because consumer spending accounts for the bulk of U.S. economic activity.

"This report looks solid after a run of disappointing numbers," said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

Purchases at auto dealers rose 1.4 percent last month, while restaurants and building materials stores both recorded a 0.7-percent gain. Shopping also improved at furniture stores, sporting goods retailers and clothiers.

Even gasoline station sales increased in July, although lower prices at the pump have generated a 15.2-percent drop in sales over the past year.

Not all sectors improved last month. Sales waned at electronics and department stores, while spending at grocers was flat.

In the past 12 months, retail sales have risen 2.4 percent. That increase slightly exceeds average hourly wage growth of 2.1 percent, a sign that consumers are starting to spend their additional earnings after a prolonged period of caution during the six-year recovery from the Great Recession.

Retail spending has improved as employers have added a solid 2.9 million jobs over the past year. The hiring has driven the unemployment rate down to 5.3 percent from 6.2 percent during that period.

Gasoline prices are averaging $2.59 a gallon nationwide, a 25-percent drop over the past year, according to AAA.

But the drop in gas prices also weighed on retail sales, which the government measures in dollars. When prices drop and the dollar becomes cheaper relative to other currencies, consumers might be buying the same amount of items even if they're spending less money.

Economists watch the retail sales report closely because it provides the first indication each month of the willingness of Americans to spend. Consumer spending drives 70 percent of the economy. Still, retail sales account for only about one-third of spending, with services such as haircuts and Internet access making up the remaining two-thirds.

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