USA: retail sales started Q3 on a soft note

We are not overly worried by today’s soft set of data. We forecast that consumption will grow by some 21⁄2% q-o-q annualised in Q3, a similar growth rate to what was recorded in Q2. And our scenario that economic growth will settle at around a robust 3% in H2 2014 remains unchanged.

Today’s retail sales report was weaker than expected. Consumption started Q3 on a soft note. However, we remain relatively optimistic and expect consumer spending will grow by some 2 1⁄2% q-o-q annualised in Q3.

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Nominal retail sales remained unchanged m-o-m in July, below consensus expectations.

July’s sales were negatively influenced by a 0.2% m-o-m fall in nominal car sales – actually not a surprise as already published data on unit car sales showed a 2.5% m-o-m decline. Sales of building materials (and garden equipment) increased by 0.2% m-o-m, following four consecutive months of solid gains, while sales at gasoline stations inched up by a small 0.1% m-o-m.

Control sales rose only very modestly m-o-m in July

Given these developments affecting the most volatile components of retail sales, it is – as usual – interesting to look at what happened with control sales, i.e. sales excluding cars, gasoline and building material stores (the portion of retail sales that goes directly into consumption calculations). Control sales were disappointing as well, rising by only a meagre 0.1%, below consensus expectations (+0.4%). Moreover, the figure for June was revised down from +0.6% to +0.5% and the one for May from +0.2% to +0.1%. Nevertheless, core sales grew by a still relatively solid rate of 4.1% annualised between March-May and June-July.

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Still relatively optimistic on Q3 consumption growth

Today’s data were clearly downbeat. Retail sales entered Q3 on a soft note. Nevertheless, we remain relatively sanguine for overall consumption growth in Q3. Job creation and personal income are gaining momentum, the savings rate was significantly higher in June than at the end of last year, consumer credit is expanding robustly and the Conference Board index of consumer confidence reached a new cycle high in July (see chart below). Moreover, gasoline prices have fallen back noticeably over the past few weeks, which will support consumer real spending, at least in the short run.

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As a result, we are not overly worried by today’s soft set of data. We expect consumption to grow by some 21⁄2% q-o-q annualised in Q3, a similar growth rate to what was recorded in Q2. And our scenario that economic growth will settle at around a robust 3% in H2 2014 remains unchanged.

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