MoreThe better-than-expected June increase came after no change in sales in May, according to revised figures released by the Commerce Department on Tuesday. In the initial report a month ago, the government had said sales gained a tiny 0.1 percent in May. Retail sales fell by 0.3 percent in April.
The June advance was strong in a number of areas led by a 2.6 percent jump in sales at hardware stores and a 1.3 percent rise at clothing stores.
"Consumers are back in there doing their best to prop up the economy," said Joel Naroff, chief economist at Naroff Economic Advisors. "They spent a ton of money on building and garden supplies, clothing, furniture, sporting goods, health care and just about everything else."
The June sales performance was welcome following two lackluster months for sales which had raised concerns that the consumer sector, which single-handedly has kept the current recovery alive, might be showing signs of faltering.
Still, even with the increase, some analysts cautioned that the economy will need all the help it can get going forward. Many economists are expecting President Bush's new round of tax cuts, which began showing up in paychecks in July, to provide momentum for the second half of the year.
Federal Reserve Chairman Alan Greenspan, delivering the Fed's twice yearly economic forecast to Congress on Tuesday, said that the central bank expected growth to rebound in the second half of this year, but he said if this forecast doesn't pan out, the central bank is ready to slash interest rates again. The Fed has already pushed a key short-term rate to 1 percent, its lowest level in 45 years.
Many analysts believe the Fed may well have to reduce rates again, especially if the recent increases in the unemployment rate, which hit a nine-year high of 6.4 percent in June, rattle consumer confidence.
