Economists missed the mark on retail sales this month by a mile.
The Bloomberg Econoday consensus estimate was +0.4% in a range of +0.2% to +0.7%.
The result was 0.0%.
Consumers spent their money on vehicles in July but not on much else as retail sales came in unchanged. When excluding autos, retail sales slipped 0.3 percent for the first decline in this reading since March. When excluding both autos and gasoline, the latter falling on lower prices, retail sales improve slightly but are still down 0.1 percent for the first decline since January. This core reading is telling and will likely define total consumer spending (which includes services) for the month of July.
The big plus that saves the report is the 1.1 percent monthly surge in motor vehicle sales, one that follows a 0.5 percent gain in June. Spending elsewhere may be weak, but spending on vehicles is a signal of consumer confidence and strength. Elsewhere, positives are hard to find.
Supermarket sales fell in the month as did building materials. Sporting goods were especially weak as were restaurant sales, the latter a discretionary category that speaks to the month’s lack of non-vehicle punch. On the plus side once again are sales at nonstore retailers which, driven by ecommerce, jumped a sizable 1.3 percent for a second straight month and follows even larger gains in prior months. Sales at gasoline stations, reflecting lower prices, swung 2.7 percent lower following a 2.2 percent gain in the prior month.
The consumer is the driver of the economy and July’s weakness for retail sales makes for a slow start to the third quarter and will ease talk for now of a September FOMC rate hike. Upward revisions are footnotes in the report with June now at plus 0.8 percent, up 2 tenths from the initial reading which will pull GDP revision estimates for the second quarter higher.
Unit vehicle sales proved very strong in July and are the backbone for an expected 0.4 percent rise in retail sales. When excluding autos, retail sales are expected to post a less impressive 0.2 percent rise. But gasoline sales, pulled down by a drop in prices, will prove an outsized negative in report. When excluding both autos & gas, retail sales are expected to rise a solid 0.3 percent. This latter reading proved very strong during the spring.
Even with the upward revisions in June, economists missed the mark. The expected “solid 0.3 percent” rise excluding both autos & gas came in at negative 0.1%. Factoring in the +0.1 revision in June sales were “solidly flat”.
Don’t worry, it’s just another temporary soft patch.
Mike “Mish” Shedlock