Friday, July 15, 2016

Retail Sales Augur Better Economic Growth Ahead

Popular Economics Weekly

Many signs are pointing to better growth ahead, led by consumer, or retail spending. Ex-auto ex-gas offers a gauge on underlying trends in consumer spending, as non-store retailers popped a 1.1 percent surge in the month which follows even stronger gains in prior months.

Additionally, department stores, up 0.9 percent, show a big comeback in the month with sporting goods & hobbies strong for a second month. There was also a large 3.9 percent surge in building materials & garden equipment, a component that had been lagging. This is because of surging housing sales—both new and existing homes are now topping 6 million units per year and back to pre-recession (though not housing bubble) levels.

Graph: Econoday

And industrial production is reviving. Industrial production in June grew at the fastest monthly rate in eleven months, on the back of strong auto and utility output, but analysts said the sector was still likely to face headwinds in coming months.

The Federal Reserve said Friday that industrial production grew 0.6 percent in June, topping the economists’ consensus for 0.5 percent growth. This is the fastest growth since last July.

The production of motor vehicles & parts surged 5.9 percent in June following a 4.3 percent drop in May. Year-on-year, this component tops the list with 7.8 percent growth compared to only 0.4 percent growth for manufacturing as a whole. Only due to vehicles, manufacturing managed to put in a good showing in June, up 0.4 percent on the month to reverse a revised 0.3 percent decline in May.

In other words, the numbers look good enough to augur 3 percent GDP growth in Q2. Retail sales in particular are a major plus for the second-half economic outlook not to mention coming data on the second quarter (sales for April, after the second revision, are at a standout plus 1.2 percent, for instance). Monthly core retail sales were up a very large 0.7 less volatile auto and gas sales which translates to a 8.6 percent annual sales rate, but averages out to a 4 percent increase year to date.

So the job market (and so economic growth) is healthy and the consumer alive and spending.

Harlan Green © 2016

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