Americans keep spending while "grumbling" about the economy

The list of headwinds facing American consumers keeps getting longer. Yet their willingness to spend has not yet cracked.

Why it matters: Economists feared that the Middle East-driven jump in gasoline prices would dent consumer spending. Instead, a still-stable labor market and rising household wealth appear to have given consumers enough cushion to keep spending.

• For Federal Reserve officials, resilient consumer demand is both encouraging and challenging: It keeps the economy growing while making it harder to judge how quickly inflation can ease.

What's new: Retail sales rose 0.2% in June, the fifth straight monthly increase, after May was revised up to a robust 1%.

• That headline understates last month's momentum: Sales excluding gasoline stations climbed 0.7% as lower gasoline prices helped drive a 5.3% drop in gasoline-station receipts, while spending at auto dealers jumped almost 2%. (The data is not adjusted for inflation.)
• E-commerce retail spending rose about 2%, likely reflecting Amazon's earlier-than-usual Prime Day promotions. Sporting goods retailers gained 1.3% and electronics stores rose 0.8%.
• Restaurant and bar sales edged up just 0.1% nationally, showing no obvious World Cup surge in the aggregate data. Any lift from the later knockout rounds and final would land in July.
• Grocery sales fell 0.4%, while spending at clothing stores declined 0.3% and health and personal care retail shopping dropped 0.8% from May.

What they're saying: "In the face of the rise in gasoline prices (though moderating in June), and real wages that are no longer growing, nominal retail sales were pretty good," Peter Boockvar, chief investment officer of OnePoint BFG Wealth Partners, wrote in a report.

• "Yes, part of this is at the cost of a very low savings rate, but the labor market has been better this year than last," Boockvar added.
• Separate data Thursday morning showed that initial jobless claims fell to 208,000 in the week ended July 11, underscoring historically low layoffs across the economy.

Zoom in: The control group — which excludes autos, gasoline, restaurants and building materials and is closely watched as an input into GDP estimates of goods consumption — rose a solid 0.5% in June, after upward revisions to the prior two months' data.

The big picture: Each fresh sign of consumer resilience strengthens some Fed officials' conviction that the economy no longer needs protection from a slowdown — and that inflation remains the bigger challenge.

• Fed governor Lisa Cook said Wednesday that "surprisingly resilient output further reinforces that view," adding that the AI buildout that "does not show signs of slowing" is keeping upward pressure on broader demand.

What to watch: The disconnect between healthy consumer spending and dreadful sentiment has become a defining feature of the American economy.

• "As they have throughout the post-pandemic expansion, consumers are grumbling about the state of the economy in surveys, then turning around to spend openhandedly," Fifth Third chief economist Bill Adams wrote in a note.