US retail sales likely increased at modest pace in July, suggesting consumers remain cautious

Economic IndicatorsAssociated Press

The Commerce Department releases retail sales data for July. The report will come out Wednesday at 8:30 a.m. Eastern.

SALES STEADY?: Economists forecast that retail sales rose 0.3 percent last month, according to a survey by the data firm FactSet.

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That would be slightly ahead of June's gain of just 0.2 percent. Retail sales have risen at a modest pace in recent months after a sharp jump in March. The tepid gains suggest Americans remain cautious about spending even as hiring has picked up.

CONSUMER SENTIMENT MIXED: A small rise in July would mean consumer spending is off to a slow start in the third quarter. Economists track retail sales closely because consumer spending drives 70 percent of economic activity.

Consumer spending picked up in the April-June quarter after a sluggish showing in the first three months of the year. It grew at a 2.5 percent annual pace, after increasing just 1.2 percent in the first quarter, which was the weakest reading in nearly three years. In a healthy economy spending growth is typically 3 percent or higher.

Americans are sending mixed signals about their willingness to spend. Consumer confidence jumped to its highest level in nearly seven years in July, according to the Conference Board. That suggests Americans may be more willing to open their wallets.

And auto sales grew 9 percent in July from a year earlier to 1.4 million, the best showing for July since 2006.

But purchases of large items like autos may be leaving many Americans with less money to spend on discretionary items like clothing and electronics. Rising grocery prices may have squeezed household budgets as well.

A separate measure of consumer sentiment by the University of Michigan, released last week, showed that confidence slipped last month.

Still, employers are hiring at a steady pace, which may boost spending this year. Employers have added an average of 244,000 jobs a month in the first half of this year, the best stretch in eight years.