Retail sales jumped 1 percent in June as consumers continue to absorb higher costs, according to federal data released Friday.
While the closely watched metric of the nation’s economic health shows that Americans are still spending, rising retail numbers also threaten to push inflation higher in a hot economy. That could prompt policymakers to take even more forceful action to combat 40-year high inflation.
The report is the first of two out Friday offering insights on Americans’ spending habits and their expectations for the economy.
Consumer sentiment data will be released by the University of Michigan at 10 a.m. will give economists an idea of how Americans are feeling about the economy. Consumer sentiment fell to an all-time low in June, with many Americans worried about long-term inflation.
“We’re at this weird moment where you sort of want the economy to slow. You just don’t want it to go into reverse,” said Jason Furman, an economics professor at Harvard University. “There are a lot of unusual uncertainties that we don’t usually see.”
The looming question is whether the U.S. economy shrank again in the second quarter of 2022, after unexpectedly contracting in the first three months of the year. The next round of gross domestic product figures will be released July 28.
“After flying well above cruising altitude last year, the inevitable descent in economic growth is clearly underway,” Wells Fargo economists wrote in a note on Thursday. “The tight stance of policy alongside still high inflation suggests a recession is more likely than not next year.”
There’s a mix of signals in the business world. On Thursday, two of the nation’s largest banks, JPMorgan Chase and Morgan Stanley, reported lower profits partly because of fewer mergers and initial public offerings on Wall Street. JPMorgan even reported that it was setting funds aside to protect against losses in the event of a downturn. Yet its chief executive, Jamie Dimon, said Americans are better situated to withstand a recession than they were before the financial crisis.
For families, the economy feels more dire. Americans are facing higher prices on everyday essentials like food, gas and housing. New inflation figures released Wednesday showed that prices have risen 9.1 percent in the past year, exceeding economists’ expectations and putting renewed pressure on the Fed to move aggressively to cool the economy.
There are also growing fears that a sharp Fed move could, in turn, could tip the U.S. economy into recession.
“It’s hard to find much encouraging news in the latest inflation report,” said Karen Dynan, an economist at Harvard University and former economist at the Federal Reserve Board. “This was the most important data point the Fed will get prior to its meeting later this month, and it’s probably going to have to intervene more aggressively than it had hoped to in order to restrain demand. And it also raises the odds that they cannot achieve that without a downturn.”
The blistering June inflation report raised questions about whether Fed officials would move even more aggressively to tame inflation at their upcoming policy meeting. Inflation notched yet another peak last month, zapping any hope that the Fed’s moves so far were bringing prices down.
For weeks, policymakers have leaned toward another hike of three-quarters of a percentage point, mirroring the increase they adopted in June. But it was unclear whether they would start to show support for a hike of a full percentage point before their July 26-27 policy meeting.
So far, officials appear to be sticking to their original message. And if anything, they are warning against reacting too suddenly to one bucket of data. On Thursday, Christopher Waller, a member of the Fed’s Board of Governors, said that even though the latest consumer price index report was “a major league disappointment,” there were hazards to snap policy decisions.
“You don’t want to overdo the rate hikes,” Waller said. “A 75 basis-point hike is huge. Don’t think because you’re not going 100, you’re not doing your job.”
The message was echoed by St. Louis Fed President Jim Bullard, who told Nikkei Asia that his preference was to stick to a hike of three-quarters of a percentage point for now. San Francisco Fed President Mary Daly told the New York Times that even though she expected a brutal inflation report, she still favors a hike of three-quarters of a percentage point.
An outlier is Atlanta Fed President Raphael Bostic, who does not have a vote on the Fed’s policy committee this year. Asked about the possibility of a hike of a full percentage point on Wednesday, Bostic told reporters that “everything is in play.”
