WASHINGTON—Americans’ spending started the third quarter on a strong footing amid a tight labor market and robust consumer confidence.
Retail sales—a measure of spending at U.S. stores, websites and restaurants—rose 0.5% in July from the prior month, the Commerce Department said Wednesday. That was well ahead of economists’ forecasts for a 0.1% increase.
The growth was driven by stronger spending at grocery stores, restaurants, department stores and clothing stores.
“Restaurants are a highly discretionary category, and continued strength suggests that households are not too worried about higher gas prices and that tax cuts are providing a cushion,” Morgan Stanley economists said in a note to clients.
Excluding motor vehicles, sales were up 0.6% in July, and excluding gasoline, sales were up 0.5%. Excluding both categories, sales were up 0.6% last month. Sales at food and beverage stores increased 0.6% in July, the strongest rate of growth since December last year.
Spending in June was revised lower, to a 0.2% advance from an initially reported 0.5% rise. Compared with a year earlier, sales grew 6.4% in July. That’s more than double the pace of inflation, which increased 2.9% in the year to July as measured by the Labor Department’s consumer-price index.
Consumer spending is a key driver of the U.S. economy, representing about two-thirds of economic output. Overall consumer spending was weak in the first quarter of this year but picked up strongly in the second, a trend which Wednesday’s report suggests continued early in the third quarter.
Average gas prices for U.S. drivers were $2.85 for a gallon of regular fuel in July, down slightly from $2.89 in June, according to the U.S. Energy Information Administration, and consumers spent more at gas stations last month than they did in June. In July, sales at gas stations rose a seasonally adjusted 0.8%, and were up 22.2% from a year earlier. The retail-sales number wasn’t adjusted for inflation.
Retail-sales data can be volatile from month to month. Sales at department stores grew strongly in July, rising 1.2%. Sales at nonstore retailers, such as purchases made online or from mail-order catalogs, rose 0.8%.
Fashion company Michael Kors Holdings Ltd. last week said it was optimistic about business for the current fiscal year and beyond, after the company reported higher earnings for the quarter that ended June 30.
“The American consumer is healthy,” Chief Executive John Idol said during an Aug. 8 earnings call.
Meantime Home Depot Inc. on Tuesday raised its earnings and sales targets for the year as it continued to benefit from robust home-improvement activity and a strong U.S. economy in the latest quarter.
The low unemployment rate, which was 3.9% in July, and growing wages have buoyed consumer spending in recent months. Measures of consumer confidence have remained high, supported by continued job gains and broader economic growth.
Tax cuts also appear to be propelling robust consumer demand. Many households are experiencing less withholding from their paychecks thanks to the tax overhaul.
The Federal Reserve closely eyes consumer-spending data as a gauge of economic growth, and Fed officials pointed to a pickup in consumer spending as a factor in their decision to raise interest rates in June to a range between 1.75% and 2%.
Write to Harriet Torry at harriet.torry@wsj.com