July Retail Sales, International Trade, August UI Claims

  • Retail Sales for July increased by a solid 0.5 percent with gains seen across most categories.
  • Non-auto Retail Sales also increased by 0.5 percent in July led by gasoline stations.
  • The U.S. International Trade Balance widened more than expected in June to -$53.1 billion.
  • Initial Claims for Unemployment Insurance fell by 7,000 to 395,000 for the week ending Aug. 6.

Shoppers held their ground in July despite three months of weak job creation and the uncertain implications of the Congressional debate on the U.S. debt ceiling.  Retail sales for July gained 0.5 percent after increasing by 0.3 percent in June. Motor vehicle sales gained 0.4 percent, a weaker gain than the month before. Non-auto retail sales increased by 0.5 percent, paced by peak summer driving demand and moderately increasing gasoline prices. Gasoline station sales were up by 1.6 percent.  Sales at electronics and appliance stores increased by 1.4 percent. Building material sales were down by 0.4 percent and sporting goods sales slipped by 1.5 percent, suggesting that shoppers drove to the malls in their new cars to buy air conditioners and televisions as the summer heat kept outdoor activities to a minimum…it’s a good story. The key question for the economy now is, will we get enough job growth to support consumer spending going forward? In early August weekly chain store sales data was lackluster.

The U.S. trade gap widened more than expected in June, pushing out to -$53.1 billion, the widest trade gap since October 2008.  Oil prices were not to blame as the trade balance for petroleum shrank by about $1 billion. Total U.S. exports dipped by about $4 billion and imports decreased by about $2 billion. Monthly volatility in the trade balance is to be expected as oil prices fluctuate and global trade patterns equilibrate as Japan recovers from the earthquake of late March. However, the consequence of a wider than expected trade gap for June is a likely downward revision to Q2 GDP, all else equal. Initial claims for unemployment insurance dropped by 7,000 for the week ending August 6, bringing the level below 400,000 to 395,000. This is a positive development for labor markets, but the improving trend must be maintained in the weeks ahead to be believable.

Market Reaction: Equity markets opened positively but are still showing volatility. Treasury yields are down at the long end. Oil is up to $88.08/barrel. The dollar is giving ground against the yen and the euro.

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