Ed Kashmarek - The Everyday Economist
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Retail Sales Rise Twice as Much as Expected in July

8/16/2017

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​Retail sales rose 0.6% in July from the prior month, twice as much as the consensus forecast of a 0.3% increase, following a 0.3% increase in June that was revised up from a 0.2% decline. Sales excluding autos and gas also beat expectations, rising 0.5% compared to expectations of a 0.4% increase. On a year-over-year basis, sales were up 4.2%, better than the 3.6% pace in June but still below the recent peak growth rate of 5.6% reached in January. 
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The biggest monthly increase in dollar terms was a $1.2 billion, or 1.2%, increase in motor vehicles and parts. Non-store sales followed with a $696 million, or 1.3%, increase. Building and garden supply stores took the third spot with a $359 million, or 1.2%, increase. On a percentage basis, the strongest growth was seen in the miscellaneous category, where sales rose 1.8%. The biggest decline in sales came from gasoline stations, where sales fell by $130 million, or 0.4%, as gasoline prices declined. Sales at electronics and appliance stores fell by $43 million, or 0.5%, which was the biggest percentage decline. The only other decline was a $38 million, or 0.2%, drop in clothing sales.

​Sales were higher on a year-over-year basis, led by a $5.3 billion, or 11.2%, increase in non-store sales. Vehicles and parts sales were close behind, up by $5.2 billion, or 5.5%. Building and garden supply stores sales were up by $2.3 billion, or 7.9%. On the downside, sales at sports and hobby stores were down by $282 million, or 3.8%. Department store sales were down by $238 million, or 1.8%, amid a struggle against online competition, while electronics and appliance store sales were down by $85 million, or 1.0%, from the prior year. 
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If we take out the impact of gasoline sales, which are not really an indication of stronger or weaker economic growth but rather due to changing gas prices, ex-gas retail sales were up 4.3% from a year ago in July, the most since January. If we also adjust for inflation, we see that real ex-gas retail sales were up 2.6% in July. Not only was this the best growth since June 2016, but it was strong enough to break out of the two-year-long downward trend, a welcome development for consumer spending.  

​Despite all of the weak May data, the Federal Reserve raised interest rates in June but finally took a breather in July. Today’s retail sales report, along with upward revisions in the last couple months, paints a brighter picture for consumer spending. Even so, inflation remains at bay and wage growth remains tepid. This bodes well for no rate hike in September.
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