More shopping in July as US retail sales likely increased 0.6 percent

MarketsAssociated Press

The Commerce Department releases retail sales data for July on Thursday at 8:30 a.m. Eastern.

SALES RECOVER: Economists forecast that retail sales rose 0.6 percent in July, according to a survey by FactSet. This would reverse the 0.3 percent dip in June. Sales climbed a solid 1 percent in May because of accelerating auto purchases.

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STRONGER ECONOMY, RELUCTANT SHOPPERS: The combination of strong job growth and cheaper gasoline prices seen this year had historically fueled consumer spending, yet retail sales have largely been muted for the first half of 2015.

In the past 12 months, retail sales have edged up just 1.4 percent. That slight increase is roughly in line with the low core inflation rate — which excludes volatile energy and food prices — of 1.8 percent. The weak sales gains indicate that many workers are either saving more of their wages or using the money to pay down their debts instead of shopping more.

The muted sales growth contrasts against an economy that has added a seemingly robust 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.

Consumers have also benefited from cheaper gasoline. Prices at the pump are averaging $2.59 a gallon nationwide, a 25 percent drop over the past year, according to AAA. Most of the growth in retail spending has occurred at auto dealers, furniture stores and restaurants, barely offsetting the downward pressure on spending caused by lower fuel costs.

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. Yet retail sales account for only about one-third of spending, with services such as haircuts and Internet access making up the other two-thirds.