WASHINGTON—American shoppers increased their spending in June and factories picked up production, adding to evidence the U.S. economy is wrapping up a solid second quarter despite challenges from abroad.
Strong retail sales in June, coupled with an increase in manufacturing output, set the stage for a stronger-than-expected reading for economic growth in the second quarter. After Tuesday’s reports, forecasting firm Macroeconomic Advisers raised its projection for gross domestic product to grow at a 2.1% seasonally adjusted annual rate in the quarter, from a previous forecast of 1.8%.
Despite an overall solid economic picture, increasing risks from global growth and brewing trade tensions are primary concerns the Federal Reserve has cited in signaling it is ready to cut interest rates later this month to cushion the U.S. economy.
“The bottom line for me is the uncertainties around global growth and trade continue to weigh on the outlook,” Fed Chairman Jerome Powell told the House Financial Services Committee last week.
Whereas manufacturing accounts for a small share of the economy, consumer spending fuels more than two-thirds of economic output. Retail sales, a measure of purchases at stores, at restaurants and online, rose a seasonally adjusted 0.4% in June from a month earlier, the Commerce Department said Tuesday.
Four consecutive months of rising retail sales suggests consumers remain a deep reservoir of strength for the U.S. economy. From a year earlier, retail sales were up 3.4% in June, and sales in April and May each logged increases of 0.4%. Meanwhile, manufacturers, the oft-cited pocket of weakness in the economy this year, increased output last month, according to a Federal Reserve report released Tuesday.
Joseph Brusuelas, chief economist at RSM US LLP, said strong spending at restaurants and online shows consumers should help buffer against economic uncertainty from overseas.
“The consumer has a fairly bright outlook at this point, just based on job gains and wage gains,” he said.
Americans’ spending increases were broad-based. They ramped up spending online, where outlays were up 13.4% from a year ago and 1.7% from May. Consumers also spent solidly at clothing stores, restaurants and building-material supply stores. Meanwhile, gasoline-station sales fell 2.8% in June from the prior month. The decline was widely anticipated by economists due to a pullback in gas prices.
Sharon Mulcahy, a 59-year-old stay-at-home grandmother from Blackstone, Mass., said last month she felt encouraged by an economy “that’s going really well.”
“We’ve doubled our 401(k), and we’ve actually started traveling more because there is more income,” Ms. Mulcahy said, standing outside the White House on a late-June trip to Washington, D.C.
While manufacturing output increased, some analysts cautioned it could be a temporary rise, given faltering demand abroad and recent weakness in other manufacturing surveys. Industrial output overall was flat in June, the Federal Reserve said Tuesday, suggesting not all segments of the economy are climbing.
An index of factory activity produced by the Institute for Supply Management slipped to 51.7 in June, the third straight month of slowing expansion, as manufacturers confronted renewed trade tensions and slowing growth abroad. U.S. manufacturers face higher costs for many components and metals because of U.S. tariffs on goods from China and a strong dollar that makes U.S. exports more expensive.
—Likhitha Butchireddygari contributed to this article.
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