Surprise! Americans Are Still Spending Money

US retail sales unexpectedly rose in August, data out Thursday showed.

The 0.7% increase defied consensus (figure below), which expected a second consecutive monthly decline.

The range of estimates, from nearly six-dozen economists, was -3.3% to 1.1%.

Recall that July’s numbers were far worse than anticipated. The revised July headline print (out Thursday) betrayed an even steeper decline, which could take some of the shine off the upside surprise for August.

Given the rather dramatic deterioration in consumer sentiment last month, it wouldn’t have been terribly surprising to see another disappointing report. But the numbers were encouraging, or at least on a cursory read.

Ex-autos, sales rose 1.8%, far better than the unchanged print the market expected. Similarly, the control group rose 2.5% for the month, against expectations for no change.

When taken in conjunction with the cooler-than-expected read on core prices for August, this week’s top-tier US data painted a benign picture, certainly relative to “what could have been,” so to speak.

To summarize, the narrative said that with the Delta variant “raging” and prices rising, consumers were set to retrench, especially as generous federal unemployment programs and supplements were poised to expire. Instead, “you are here” (pink dot in the figure, below).

“While July’s sales data was revised lower across the board, the upside was nonetheless impressive,” BMO’s US rates team remarked, noting that non-store retailers contributed +0.76% to the headline after subtracting -0.63% the prior month.

It remains to be seen if this is a Monty Python-esque scenario (“I’m not dead yet!” “He says he’s not dead.” “Yes he is.”) But betting against Americans’ propensity to spend, even when they don’t have any money, is a fool’s errand. “I guess we can put the ‘consumer pullback’ narrative on ice for a little while,” Cameron Crise wrote.

Meanwhile, the Philly Fed was consistent with the September read on the Empire survey. And that’s generally a good thing. At 30.7 (figure below), the headline print was considerably better than expected. In fact, it topped the most optimistic estimate from 39 economists.

Still, the future activity gauge dropped, and there was moderation in the new orders and employment indices. The rebound on the headline gauge came after four consecutive monthly declines.

As you can imagine, the price gauges remain elevated, but seem to be leveling off. The prices paid index fell four points, for example, and the prices received index slipped one point.

Ultimately, this week’s data had a Goldilocks feel, which is a good thing coming ahead of the Fed. The cooler-than-expected read on inflation is plausible deniability for the doves, and the solid read on consumption is enough to allay fears of an imminent slowdown without giving the hawks too much ammunition.


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