Retail Sales Surprise Pessimists with Huge Gains in July

In July, retail sales (NYSE:XRT) posted their largest gain since March, climbing 0.5% according to the Commerce Department’s data release this morning. Consumer spending accounts for roughly 70% of the U.S. economy, so the increase in retail sales bodes well for the third quarter.

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Forecasts had the retail industry (NYSE:XRT), when excluding auto sales, gaining a more modest 0.2% in July. But gasoline (NYSE:UGA) sales increased 1.6% last month, bolstering the figure. When excluding auto sales as well as gasoline and building materials (NYSE:XLB), retail sales grew 0.4% in July. Sporting goods stores and department stores saw sales dropping 1.5% and 0.8%, respectively, but significant growth in other areas more than compensated for those losses.

If last month’s gains prove to be a trend, that might allay concerns about the economy, but just one month of improvement is unlikely to do so, as unemployment remains high and July’s retail gains are unlikely to result in a lot of hiring. Furthermore, markets have been volatile this week, skyrocketing one day only to plummet the next, which hasn’t given people much confidence in the economy. Investors will have to wait for consumer sentiment figures for August to be sure the economy is back on the course to recovery.