U.S. economic data released in early September remains consistent with ongoing moderate economic expansion. The miss in August payroll employment last week, coming in at +142,000 jobs, was countered today by better than expected retail sales.
Today’s retail sales report for August beat expectations, increasing by 0.6 percent, fueled by strong auto sales. Previously reported, unit auto sales hit a robust 17.5 million unit annual rate for August. In the retail sales report, sales at motor vehicle and parts dealers were up by 1.5 percent for the month, and 8.9 percent from a year earlier. Total retail sales excluding automobiles gained 0.3 percent, paced by gains at building materials and suppliers (up 1.4 percent). Also, July retail sales were revised up, and now show a 0.3 percent gain from June. The initial estimate of July retail sales was unchanged from June.
The better-than-expected August retail sales, in combination with the July upward revision, are important because they set the stage for better-than-expected Q3 consumer expenditures. Consumer spending is roughly two-thirds of GDP, so stronger consumer spending numbers equals stronger GDP. The August retail sales numbers also run counter to the weaker-than-expected employment data, supporting our view that the August jobs data was not indicative of an enduring downshift in employment. One final note on Q3 consumer spending…the bulk of consumer spending is on services. Consumer spending on services can vary with deviations from normal temperatures. The first half of the summer was cooler than expected. The second half of the summer was warmer than expected, particularly in the densely populated East Coast corridor. Residential electricity sales, driven by a high air conditioning load, may boost Q3 consumer expenditures.
Initial claims for unemployment insurance increased by 11,000 for the week ending September 6, to hit a level of 315,000. Even though we have seen a small uptick in the claims numbers through the end of August into early September, any number near 300,000, which this is, is a good number.
There has been some recent speculation in the financial press that the FOMC will soon make revisions to key language in their policy announcements. In Wednesday’s announcement we may see signs of a further pivot, and possibly a modification to the key phrase “for a considerable time” as forward guidance evolves.
For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 09-12-14.