Retail sales surprised today by posting an increase of 0.7% m/m in August, well above the consensus forecast for a decline of -0.7%. July’s data was revised down to a weaker -1.8% m/m (from -1.1%), taking some of the bloom off today’s rosy gain.
Volatile categories saw mixed fortunes in August. Another month of supply-chain disruptions hurt the motor vehicles and parts category, where sales declined for the fourth month in a row (-3.6% m/m). Growth in gasoline stations (+0.2% m/m) was marginal and reflected higher prices more than volumes. Demand for building materials and garden equipment (+0.9% m/m) picked up again after four months of negative growth.
Food services and drinking places was flat in August. This category has been posting growth since February 2021.
Retail sales in the “control group,” which exclude the above categories, increased by a healthy 2.5% m/m. However, July’s gain was revised down to -1.9%, from -1.0% in the advance estimate.
Most of the remaining categories were up in August. Non-store retailers – the poster child of the pandemic – contributed the most to today’s growth (+5.3% m/m). Sales in clothing & accessory stores gained only 0.1% m/m. Meanwhile, sporting goods, hobby, book & music stores weighed on sales this month, declining 2.7% m/m.
Key Implications
What a nice surprise! No doubt, the Delta variant played an important role in reducing consumers’ willingness to go out and spend, as evidenced by the stalling in growth in spending on food services and drinking places (a proxy for high-contact services) and marginal gains in gas stations (a proxy for travel). Still, the spike in Delta cases is not the only culprit. Supply-chain disruptions continue to limit auto inventories, pushing vehicle sales to the lowest level in over a year.
Better-than-expected growth in August dulls some of the anticipated downward adjustment in the forecast for spending in the third quarter. On the plus side, consumers have saved a sizeable nest egg, which should support a healthy level of spending. Looking forward, the impact from the Delta variant appears to be waning as the usage of hospital resources seems to have reached a plateau. This should help lift consumer confidence just in time for the holiday spending season.
