The Retail Sales Recovery?

By John S. McClenahen U.S. retail sales increased 1.4% in July to $317.2 billion, well above what most economists expected. What's more, the Commerce Department has revised upward its previous estimates for retail sales in May and June. Those numbers are significant, since consumer spending accounts for about two-thirds of U.S. GDP. "The power of the child tax-credit rebates showed through in style," states David A Rosenberg, chief North American economist at Merrill Lynch & Co., New York. But can such increases continue? And what will be the impact on GDP growth? Much will depend on other economic factors, specifically, natural gas prices, interest rates and employment. "It is far too early in the quarter to form a clear view of how total growth is adding up," says Maury Harris, chief U.S. economist at UBS Investment Research, New York, who is estimating inflation-adjusted GDP growing at an annual rate of 4.5% this calendar quarter. "More broadly, though, the data add to the evidence that the economy is rebounding. A key issue continues to be whether the pickup in spending will spark increased hiring."

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