Dive Brief:
- Retail sales rose 0.6% in June after a two-month slump, belying consumer worries about the outlook for jobs and the prospect that the highest tariffs since the 1930s will stoke inflation and slow economic growth.
- Ten out of 13 retail categories recorded sales gains, including motor vehicles, food and beverages, and building materials, the Census Bureau reported Thursday. Sales fell at furniture outlets, gas stations and electronics and appliance stores.
- The outlook for broad household spending in coming months is hazy, given concerns that import duties will push inflation further above the Federal Reserve’s 2% goal, San Francisco Fed President Mary Daly said Thursday. “You see this in the sentiment surveys for consumers,” she said. “We see consumer spending over time slowing from where it was, but not falling off a cliff.”
Dive Insight:
Daly is one of several Fed officials who have recently warned about the prospect of rising, tariff-induced price pressures.
The consumer price index increased at a 2.7% annual rate in June compared with 2.4% the prior month, the Bureau of Labor Statistics said Tuesday. Imported goods led the price gains, with apparel, household furnishings and appliances rising 0.4%, 1% and 1.9%, respectively.
“Although we are only seeing relatively modest effects of tariffs in the hard aggregate data so far, I expect those effects to increase in coming months,” New York Fed President John Williams said Wednesday.
Import duties will probably push up inflation by about 1 percentage point during the second half of this year “and the first part of next year,” he said in a speech.
The New York Fed’s survey of consumer expectations in June showed above average economic uncertainty, “leading many households to scale back on their expected spending growth on nonessential items,” Williams said.
Looking ahead, “I expect uncertainty and tariffs to restrain spending,” he said, predicting economic growth to slow from 2.8% in 2024 to approximately 1% this year. Consumer spending fuels nearly 70% of gross domestic product growth.
GDP probably expanded at an annual rate of 2.4% during the second quarter, the Atlanta Fed said Thursday, downgrading its estimate from 2.6% on July 9.
Concern about tariffs has discouraged business investment, Williams said. “All told, concerns about tariffs have been widespread, resulting in a reported pullback on capital spending.”
Unemployment will likely increase to 4.5% by December from 4.1% in June, and inflation will heat up to between 3% and 3.5%, Williams predicted.
“There are many reasons to think that larger [inflation] effects of tariffs are still coming,” Fed Governor Adriana Kugler said Thursday.
Many companies stockpiled imports early in 2025 before the imposition of tariffs, averting immediate price increases, she said. They have likely held off on shifting higher import prices to consumers until the Trump administration clarifies tariff levels, Kugler said.
“Businesses, especially larger ones, may also be waiting to capture market share from others that hike prices sooner,” she said in a speech.
