Nominal spending in the US held up in July and a key underlying measure economists use to refine GDP forecasts was stronger than anticipated, according Friday’s update from the Commerce Department.
Headline retail sales rose 0.5% across the world’s largest economy last month from an upwardly-revised 0.9% in June, the release showed.
Forecasters collectively saw a slightly stronger pace, but the small (one-tenth) shortfall to consensus was more than offset by a better-than-expected read on control group sales, which rose the same 0.5% — Wall Street was looking for 0.4% from that readout.
As the figure shows, the rebound in headline nominal spending’s now in its second month.
Personal spending as calculated by the BEA was on the weak side in Q2 (following a wholly lackluster Q1) and real spending on the same measure’s been flat since April. So, the upbeat read on control group spending in the retail sales report was a welcome, if expected, development.
As BMO’s Ian Lyngen pointed out Friday morning, “from a seasonal perspective, July is the strongest month of the year for control group sales,” which beat consensus nearly 70% of the time looking back 13 years and in four of the last five Julys. Friday makes five of six.
Nine out of 13 categories showed a gain in Friday’s release. Car sales rose 1.7% after a 1.6% gain in June. Excluding autos, retail sales rose 0.3%, matching estimates. Prime Day likely boosted online sales. The category which includes building materials was a drag, as were appliance sales and restaurant spending, the only services sector line in the release.
You don’t need a lot of analysis here. This was a solid report and it suggests that whatever’s going on with the “RIGGED” jobs data, Americans are still spending. In an economy which lives and dies by consumption, that’s (in some sense sadly) all you need to know.
Oh, and it goes without saying that these kinds of sturdy datapoints argue against aggressive rate cuts. The Fed’s going to cut next month regardless, but as Lyngen put it, decent spending argues for a “gradual” approach to easing “as opposed to a more hurried pace” on the way back down to neutral.
Between this and the inflation expectations, it would seem that it’s another in a long line of data points pointing to a bifurcated economy. My guess is this is driven by the wealthy who are continuing to celebrate their tax cut winning streak. Meanwhile, the poors are trying to figure out how they’ll deal with the inflation in their grocery bill.
Just wait until Trump gets his rate cuts and housing costs start skyrocketing again.