Retail Sales Were Stronger than Expected in June

Jul 16 21, 13:34 GMT

Retail sales rose by 0.6% in June, well above the median consensus forecast for a 0.3% decline. However, May’s reading was revised down from to -1.7% (from -1.3%), removing some froth off today’s gain.
Trade in the auto category was particularly weak, with sales at motor vehicle dealers declining by 2.0% from the downwardly revised reading of -4.7% (revised from -3.9% m/m in May). Excluding auto, retail sales increased by 1.1%, more than the expected increase of 0.4%.
Sales in other relatively more volatile categories were mixed in June. Building materials and equipment dropped by 1.6% m/m, but gasoline stations rose 2.5% m/m gain.
The “control group”, which excludes the most volatile components, was strongly in the black June with a 1.1% gain, but May’s reading was revised down to -1.4% from (-0.7% previously).
Food services & drinking places and clothing & accessory stores rose by 2.3% and 2.6% m/m, respectively. May’s reading of the former was also revised up to 3.7% from 1.8% – a sizable upgrade, especially given downgrades elsewhere.

With sales in categories lifted by the pandemic (auto dealers, building materials retailers, home furniture & appliance stores) declining for the second month in a row, the shift in the composition of consumer spending continues. Consumer preferences are now turning to spending more to update wardrobes in anticipation of long-awaited outings with friends and families.
Declining sales at auto dealerships likely reflects supply issues more than demand that has led this red-hot sector to be the biggest contributor to consumer prices in recent months. The ratio of inventories to sales at motor vehicle and parts dealers dropped from roughly 2.3 before the pandemic to an all-time low of 1.2 in April (the most recent estimate). As supply catches up and demand cools, we hope to see this ratio normalize in the coming months, taking some steam out of prices.
All in all, today’s report was stronger than we expected and, despite downward revisions of the previous month, is consistent with our second quarter consumption forecast for double digit growth (annualized).