Retail Sales Much Stronger?

Financial FAQs

The jump in retail sales was huge, plus upward revisions to past months that made more sense with other indicators of a growing economy. It seems the consumer can afford to spend more with lower debt levels and jobs more available. Much of it was back to schools purchases, though, so will it hold up during the holidays when sales are traditionally strongest?

Retail sales jumped 0.6 percent in August after a rise of 0.3 percent the month before. Analysts projected 0.6 percent for August. The July upward revision was significant-previous estimate of zero.

Graph: Econoday

Excluding autos, sales gained 0.3 percent in both August and July, matching expectations. Excluding both autos and gasoline sales were quite healthy, increasing 0.5 percent, following a rise of 0.3 percent in July. Expectations were for 0.4 percent.

Graph: Econoday

Not surprisingly, motor vehicles increased 1.5 percent. Incentives helped feed a record 6.4 percent jump in car and light truck sales to an annual rate of 17.53 million vehicles. Next, building materials & garden equipment gained 1.4 percent-suggesting a large improvement in the housing sector. Food services & drinking places sales were up 0.6 percent, showing healthy improvement in discretionary spending. This is a good sign for the consumer sector, as I said.

Graph: Econoday

And sure enough, housing construction also gained broadly in July. Construction spending rebounded 1.8 percent after a 0.9 percent dip in June. While all broad categories advanced, July's increase was led by the public sector—up 3.0 percent, following a 1.8 percent decrease in June.  This is a big thing as government spending has been a big drag on growth until now. Private nonresidential spending (i.e., commercial/industrial) rebounded 2.1 percent in July after slipping 0.8 percent the month before.  And private residential outlays gained 0.7 percent, following a 0.4 percent dip in June.

All-in-all, the revisions to retail sales and surge in construction and vehicle sales should confirm a 3 percent plus GDP growth rate for the rest of this year,and maybe into next year, in sharp contrast to Europe and Japan. Europe is slipping back into recession, in large part because of its austerity policies that cut government spending at a time of falling consumer and export demand.

Harlan Green © 2014

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