Source: Economics Group of Wells Fargo Bank, N.A.Summary
In the month of July retailers saw a sales increase of $6.8 billion, or 25% of the total gain from the prior two years in a single month. While most of that was an autos bounce after an ugly June, gains were broadly based and thus at odds with reports of a more cautious consumer.
They Might Be Choosy, But Consumers Are Still Spending
Retailers increased sales more than twice as fast as the consensus had estimated in July. That is true whether describing headline retail sales (+1.0% vs. 0.4% expectation) or the measure that excludes autos and gas (+0.4% vs. 0.2% expectation). Perhaps the most remarkable development though is that control group sales, a favored tool for predicting PCE spending in the GDP report, increased 0.3% in July. Coming on the heels of a 0.9% gain in the prior month, the upshot is more solid goods spending than most forecasters, ourselves included, had expected.
Less than two weeks ago, broad-based weakness in the July jobs report sent global financial markets into a tailspin and re-ignited fears of U.S. recession. In our August forecast update, we described how despite it being somewhat counter-intuitive, recent consumer spending numbers have come in stronger even as labor market indicators have come in weaker. Today’s retail sales report is the latest development on this theme. That spending momentum in July positions spending for a solid third quarter.