Retail sales rose by a solid 0.5% in July – better than markets were expecting. The strength is offset somewhat by a downward revision to June sales, which are now up 0.2% (prev. 0.5%).
Sales at gasoline stations rose 0.8%, while those at auto & parts dealers rose a slight 0.2%. Excluding these two categories, sales were up a robust 0.6%.
Sales at building material stores were flat in July while sales at food services rose a healthy 1.3%, and are up 9.1% versus year ago levels. Indeed, putting aside the 22% increase over the past year in gasoline station receipts, (which is largely a move in prices), growth in food services is second only to online shopping over the past year. Sales at non-store retailers (predominantly online retailers) are up 11.3% year/year.
Excluding the above categories (gas, autos, building materials, and food services), the so-called ‘control group’ used in calculating GDP rose 0.5% on the month – also beating market expectations for a 0.4% gain. Delving into the details, sales of clothing were up 1.3%, while sporting goods (-1.7%), and health and personal care (-0.4%) were weak in July.
Key Implications
This was a very solid report. The downward revision only tempers the good news slightly. After some softness through the winter, Americans are confidently spending again. And why wouldn’t they? The unemployment rate is near an 18-year low, and with tax cuts, many Americans’ paychecks are larger.
Overall the July retail report is consistent with a healthy showing for the U.S. consumer in the third quarter, following through on its impressive 4% pace in Q2. We expect consumer spending to be a solid support to growth over the coming quarters, at around 2.5% or slightly better in real terms.
