After two soggy reports for May and June, July retail sales data came in much stronger, serving to dispel fears that the consumer was running out of gas. Headline retail sales rose 0.6% in July, on top of a +0.5% revision to June sales levels. The control sales measure we track, sales excluding cars, building materials, and gasoline, rose 0.5%, on top of a +0.4% revision to June.
The accompanying chart tells the story. A month ago, there were some initial signs of a drop in sales below preceding trend lines. With today’s data, the sales trends now look very steady. Indeed, the six-month growth rate for sales depicted by the green line in the chart has now held in a +/–3.5% channel throughout this year.
What you don’t see in the chart is any sign of a strengthening consumer. It is important to keep this in mind, given that just a few months ago, the prevalent view on the Street was that consumer spending would accelerate, driving stronger economic growth in 2H17. Again, today’s data remove the signs of an outright weakening in spending, but there is nothing there to revive the strengthening consumer story.
Sales at specific store types provide a similar takeaway. Sales were still trending lower at electronics and books/sporting goods stores, and sales growth had slowed at grocery stores and restaurants. Those slowdowns were offset in July by rising sales at furniture stores and nice growth for online retailers. Sales at building materials stores and car dealers now show a bounce over the last few months, after declining earlier in the year. However, no store type has shown an impressive growth surge recently.
Our forecast line has been that US growth would slow in the second half, pulled down by faltering exports, capital spending, and homebuilding. Soft retail sales in preceding months had made us wonder whether that forecast line was too optimistic. Today’s news assuages such concerns, but, again, there is no actual strength in the retail sales data to pose any concerns for our forecast of slower growth.