The U.S. economy continues to defy expectations, with Americans spending big on cars, appliances, and furniture, pushing retail sales up by 1% in July—the largest increase in over two years.
This unexpected uptick, reported by the Commerce Department on Thursday, has helped to shake off fears of an impending recession.
Car sales were particularly strong, rebounding from a June slowdown caused by a cyberattack that had dampened purchases.
The retail momentum wasn’t limited to autos—gains were seen across the board, from restaurants and bars to grocery, electronics, and furniture stores.
Even health goods saw a boost.
Earlier in the day, Walmart, the nation’s largest retailer, reported better-than-expected earnings and raised its forecast for the year, pointing to steady consumer resilience.
“Everybody’s trying to talk down the economy, but pay attention to what people are doing: They are increasing their spending,” said Gus Faucher, chief economist at PNC Financial Services Group.
His words underscore the robust consumer activity that’s keeping the economy on solid ground.
These upbeat reports come on the heels of an encouraging inflation snapshot, soothing investors’ worries about a downturn.
Last week’s dip in the markets, triggered by a lackluster July jobs report, now seems less alarming.
The major stock indexes surged on the retail news, with the Dow Jones Industrial Average climbing 500 points, or 1.39%, by the close of trading Thursday.
The economy’s resilience is even more impressive given the Federal Reserve’s aggressive interest rate hikes, which have driven borrowing costs to their highest levels in decades.
While these higher rates have cooled sectors like housing and manufacturing—helping to tame inflation from its 9.1% peak two summers ago to 2.9% in July—the broader economy remains remarkably sturdy.
Yet, not all signals are positive. Wage growth and hiring have slowed, and July’s unemployment rate nudged up to 3.5%, the highest since 2021.
Still, the mixed signals suggest a complex economic landscape.
On the one hand, fewer people are filing for unemployment, which hints at continued labor market strength.
On the other hand, the slowing economy might nudge the Fed toward cutting interest rates at its next meeting in September.
Inflation and economic resilience are hot-button issues in the presidential race.
Both Vice President Kamala Harris and former President Donald Trump laid out economic plans this week.
Trump is doubling down on tariffs, while Harris aims to tackle grocery price gouging—a clear sign of the high stakes attached to economic policy in the lead-up to the election.
Inflation has indeed been a sticking point for many Americans, forcing changes in spending habits.
While big names like Home Depot, PepsiCo, and Disney have flagged consumer cutbacks, particularly among low- and middle-income families, the wealthiest Americans are still driving much of the economic activity.
Consumer spending makes up roughly 70% of the U.S. economy, and within that, the top 20% of households account for nearly half of that spending, according to Morgan Stanley.
This spending power is crucial to the business landscape, highlighting the uneven impact of inflation.
“Low- and middle-income households are feeling the brunt of high inflation, but the lion’s share of U.S. consumer spending comes from the wealthiest consumers,” said Ryan Sweet, chief U.S. economist at Oxford Economics.
This spending divide is clear at major retailers.
Walmart’s 4.8% sales boost last quarter was partly due to more high-income shoppers seeking savings at the discount chain.
Meanwhile, Disney, facing disappointing earnings, cited “moderation in consumer demand” but observed that wealthier customers are still splurging on international travel.
Take the Vacationeer, a Disney-centric travel agency in Florida.
While demand for theme parks has dipped, the affluent are still booking luxury cruises, offsetting the slowdown among middle-income clients.
“If I were just selling Disney World tickets, my sales would be down this year,” said owner Jonathan de Araujo. “But people are still spending—they’re just being choosier.”
In Portland, the Fulton House Bed & Breakfast is enjoying a bustling summer, but future bookings are sparse.
“This summer’s been great, but beyond that? It’s anyone’s guess,” said manager Kevin Waring.
Despite uncertainties, one thing is clear: the American consumer remains a formidable force, propping up an economy that, like a seasoned prizefighter, refuses to go down easily.
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