Headline Sales Modest but Underlying Data Looks Good
- July Retail Sales increased by just 0.2 percent, as auto sales dipped following a strong June.
- Ex-auto Retail Sales gained 0.5 percent, boosted by higher gasoline prices.
- The NFIB’s Small Business Optimism Survey ticked up slightly in July to 94.1.
- Business Inventories were unchanged in June, suggesting a need for more restocking in Q3.
Total retail sales for July increased by just 0.2 percent, about even with overall consumer price inflation. Despite the soft headline number, the components of retail sales still make a case for consumer resilience. Auto sales for July dipped slightly after posting a break-out month in June, hitting a 15.9 million unit annualized sales rate. July dipped to a 15.8 million unit rate with retail sales (in dollar terms) dipping by 1.0 percent. Ex-auto retail sales gained a respectable 0.5 percent. Furniture sales were down by 1.4 percent in July after posting a strong 2.5 percent gain in June. Most other categories were up. Higher gasoline prices helped the topline numbers as service station sales gained 0.9 percent. Gains in house prices and equity prices are increasing household net worth and that is a good thing for consumer spending. Stir in greater credit availability and add a pinch of consumer confidence and you have a recipe for moderate gains in consumer spending through Q3 which will support stronger GDP growth in the second half of this year.
Another support for Q3 GDP growth comes, counter-intuitively, from weak June inventory accumulation. Business inventories were unchanged in June. This number is significant in two ways. First, it implies some negative offset to the expected upward revision to Q2 GDP due to the better-than-expected international trade data for June. Q2 real GDP growth in the vicinity of 2.2 percent, revised up from the advance estimate of 1.7 percent, is still a good guess. Second, weak inventory accumulation through Q2 implies that there will be some catch up in Q3 and/or Q4. Gains in business inventory accumulation should be a positive for real GDP growth in the second half of the year. Also, farm inventories will look better in the fall after last year’s drought. Manufacturers’ inventories were up 0.1 percent in June. Retailers were also up 0.1 percent. Merchant wholesalers’ inventories were down 0.2 percent.
The National Federation of Independent Businesses’ small business optimism index showed a minor uptick in July to 94.1. Analysis of the hiring questions says that small businesses have stopped reducing employment, but they have not yet stepped up hiring. Capital spending is also a problem area as spending plans remain subdued.
Market Reaction: Equity markets are down. The 10-year Treasury yield is up to 2.71 percent. NYMEX crude oil is down to $105.84/barrel. The dollar is up against the yen and down versus the euro.
For a PDF version of this Comerica Economic Alert, click here: Retail Sales 08132013.