Retail sales increased more than expected in July, as households spent more at restaurants, department stores and apparel outlets. Spending also rose on autos, suggesting that the economy retains sufficient steam even in the middle of summer. A raft of other positive economic reports also suggests that the U.S. economy is slated to expand significantly in the third quarter.

A jump in core retail sales also suggests that consumer spending continues to be robust. The increase in expenditure is being supported by a tighter labor market, which is pushing up wages. Higher savings and tax cuts are providing a firm foundation for higher consumption. This is why it makes good sense to invest in retail stocks at this point.

Consumer Spending Remains Robust in Midsummer

According to the Department of Commerce, retail sales increased by 0.5% during the month of July, exceeding the consensus estimate of 0.1%. However, June’s increase was revised downward, from 0.5% to 0.2%. Excluding auto dealers and gas stations, retail sales increased by 0.6%.

Retail sales have increased 6.4% over the past year, nearly in-line with the long-run average since 1980. Further, core retail sales, which exclude autos, building materials and food services, increased by 0.5% in July. This metric closely corresponds to the consumer spending component of GDP.

In June, core retail sales had remained flat. But it is now clear that consumer spending is being fueled by a tight labor market which is steadily boosting wages. Higher savings and tax cuts are also providing a firm basis for an increase in consumption.

Restaurants, Department and Apparel Stores Lead Gains

Gains were noticed across eight out of 13 categories. Sales at clothing stores rebounded, increasing by 1.3% after a 1.6% decline in June. Expenditure at bars and restaurants improved, boosting sales by 1.3%. Americans also spent more at department stores, with sales rising by 1.2% following a 2.1% decline in June.

Sales at nonstore retailers increased by 0.8%, possibly due to the success of Amazon’s recent promotions on “Prime Day.” Auto sales advanced by 0.2%, maintaining the pace set in June. Sales at gasoline stations increased by 0.8% while sales at food and beverage stores advanced by 0.6%.

Some major retail categories also suffered declines. Furniture and home furnishing stores experienced a 0.5% decline in sales. Sales at sporting goods, hobby, musical instrument and book stores fell by 1.7%, marking the fourth successive month of declines. Sales at building material stores remained unchanged.

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The increase in retail sales for July is an indication that the economy retains enough steam well into midsummer. Data on industrial production and non-farm productivity also suggests that the economy remains…