While there was no growth in underlying sales levels in August, this follows five months of extraordinarily strong growth. Over March-July, control sales rose by +4.2%, or at a +10.3% annualized rate. In other words, despite the less impressive results for August, the underlying trends for consumer spending still look very positive.
The claims that consumers are carrying the economy are overstatements. Total consumer spending contributed no more to GDP growth in the first half of the year than it did on average over 2017-18, or even 2015-16, for that matter. Still, the change in the consumer spending outlook in the last few months has been total.
As of May, with April retail sales data in hand, we were looking at an extended string of soft retail gains, with growth in services consumption also showing signs of slowing and income growth soft, apparently explaining the stumble in consumer spending. In the four months since then, we have seen sharp upward revisions to prior months’ sales data, continued strong gains in retail sales over May-July, a rebound in services consumption and sharp upward revisions to income growth data.
The strength of retail sales over the last six months more than offsets the softness over the preceding four months. The resulting 4.5% growth indicated in the accompanying chart is a touch slower than was seen through early-2018, but it is nevertheless a robust rate of growth and a clear contradiction to the recession stories floating around at present. Meanwhile, the similarly strong income growth that has been reported recently indicates the retail upturn is not an unsustainable binge, but merely the growth that would be expected as wage income rise.
Once again, it is a stretch to say consumers are carrying the economy, but they are certainly doing their share. While the August retail sales data were not impressive in and of themselves, the overall performance of retail sales over the last six months certainly is.