Retail Sales Beat Signals Strong 2nd Quarter GDP Recovery: July 17, 2025

Stronger-than-expected economic data coupled with President Trump softening his adversarial posture against Fed Chair Powell has stocks climbing towards records once again. The retail sales result was the most influential figure of the morning, however, trouncing estimates and signaling a mighty American consumer that is overcoming headwinds. Much of that muscle is stemming from thriving capital markets and subdued layoffs, as today’s initial unemployment claims reflected the fifth consecutive weekly decline. Meanwhile, this morning’s rate-sensitive prints depicted improvements, with homebuilder sentiment posting a modest advance while Philly Fed manufacturing recovered fiercely from a weaker month while flying past economist projections. Investors are responding to the reaccelerating economic environment and calmer winds in Washington by scooping up equities across most segments, raising greenback exposure, unwinding volatility hedges and engaging in forecast contract trading. Treasurys are also experiencing interest—the yield curve is descending in bull flattening fashion, led south by the long-end, as firm economic figures marginally reduce central bank easing expectations. Commodities are mixed, however, with natural gas, crude oil and lumber catching bids, but copper, gold and silver are facing some selling pressure.

In a Reversal, Consumers Increase Spending

Shoppers came out strong last month with retail sales gains in 10 out of the 13 major categories. Transactions advanced an impressive 0.6% month over month (m/m), well above the 0.1% median estimate and 0.9% in May. Groups with the largest gains and the extent of the changes included the following:

• Miscellaneous stores, 1.8%
• Automobile dealerships, 1.2%
• Building materials retailers, 0.9%
• Apparel shops, 0.9%

Other categories with gains included restaurants/drinking parlors, food markets, health/personal boutiques, general merchandise establishments, ecommerce and sporting good destinations, which grew revenues between 0.2% and 0.6%.

Electronics outlets and furniture showrooms were the only two posting declines. Both fell 0.1%. Gasoline stations were flat.

Initial Unemployment Claims Continue to Sink

First-time filings for unemployment benefits fell for the fifth-consecutive print during the week ended July 12, pointing to a continued trend of retaining workers in the American economy. The 221,000 figure was the lightest in three months and arrived beneath expectations calling for 235,000 and the prior publication’s 228,000. But for those without a job, things remained challenging, as continuing applications inched up to 1.956 million throughout the week ended July 5. That was slightly above the 1.954 million from the previous report but below the projected 1.970 million. Four-week moving average trends shifted in bifurcated fashion, from 235,750 and 1.953 million to 229,500 and 1.958 million.

Heavy Rates, Elevated Prices Continue to Limit Construction

Homebuilder sentiment improved slightly this month on a better outlook for sales in the present and in the near future. The headline figure of 33 matched the median estimate and advanced modestly from June’s 32. Scores for current transactions and expectations in the next six months inched up from 35 and 40 to 36 and 43 but the traffic of prospective buyers sunk from 21 to 20. Across regions, the Midwest, Northeast and West climbed from 39, 44, and 22 to 44, 48 and 25. But the South retreated from 30 to 29. Overall, conditions remain weak, with a topline score well below 50 due to hampered affordability driven by the combination of heavy mortgage rates and elevated prices.

Retail Sales Set Up Strong 2nd Quarter Recovery

Economic growth in the second quarter is going to bounce significantly from the negative we experienced in the first three months of the year. And the pace is likely to continue ramping up as 2025 progresses because labor conditions remain tight, capital markets are thriving and inflation is contained. This beneficial trio offers an assist to a continuation in the consumer spending recovery we saw this morning, that wrapped up the initial half of the year from a retail sales perspective. Meanwhile, an improved outlook on trade is also significant, considering that adversarial postures in cross-border commerce alongside severe government expenditure reductions were the two greatest potential short-term headwinds of the Trump policy mix. But with rhetoric becoming milder, agreements being signed and austerity out of the window, the path to corporate earnings expansion and GDP acceleration widens from here.

International Roundup

UK Job Market Weakens

The UK job market is cooling with this morning’s data release depicting declining payrolls, slowing wage growth, and a higher unemployment rate. According to preliminary estimates from the Office for National Statistics, (ONS) payroll shrank by 41,000 positions m/m in June and 178,000 year over year (y/y), representing declines of 0.1% and 0.6%.

In another disappointment, the March to May unemployment rate climbed from 4.6% to 4.7%, its highest level since the middle of 2021. The consensus forecast called for an unchanged result.

Average earnings excluding bonuses and with bonuses also weakened, climbing 5% in the March to May interval. The excluding bonuses metric surpassed the economist consensus of 4.9% but was down from 5.3% in the February to April time period. When including bonuses, compensation growth matched the forecast but also slowed from the prior period’s rate of 5.4%.

Unemployment claims also climbed. At 25,900, the result was above both the economist consensus forecast of 17,900 and May’s 15,300 print.

Hong Kong Unemployment Rate is Unchanged

The Hong Kong unemployment rate for the three-month period ended in June was unchanged from 3.5% in the preceding period through May, according to the Hong Kong Census and Statistics Department.