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Retail Sales Fade to Flat

Posted by Joseph Trevisani on Aug 12, 2016 3:45:49 PM

After the strongest quarter in four years U.S consumers reined in their demand for almost everything except automobiles in July, sales of which were most likely sustained by the availability of credit at car dealerships.

Retail sales were flat for the month following June’s revised 0.8 percent gain. The second quarter average gain of 0.73 percent was the liveliest three months since the first quarter of 2012, according to the Commerce Department on Friday. Economists in the Bloomberg survey had predicted a 0.4 percent increase. On the year sales were 2.3 percent higher in July, down from June's 3.0 percent gain. 

Leaving out autos, sales fell 0.3 percent, well below the 0.1 percent forecast. It was the biggest decline in purchases since January.  Sales ex autos and gasoline were down 0.1 percent, also  the slowest since January. 

The report is problematical for U.S. economy as it heads into the second half of the year.  Growth has been weak for three quarters, with the economy expanding at a 1.2 percent annualized pace in the second quarter and just 1 percent over the last nine months.

Consumer spending has been the main engine, business investment and government outlays have been flat or negative.  

Core sales, also called the 'retail sales control group' which are the figures used  by the Bureau of Economic Analysis to calculate gross domestic product and which excludes sales of cars, gasoline, and building materials were flat in July, missing the 0.3 percent forecast. June’s number was unchanged at 0.5 percent. Annual sales dropped to 3.0 percent from 4.0 percent in June.

The labor market returned to solid growth in June and July after three lackluster months. Annual wages increases jumped to 2.6 percent equaling the best level since the financial crisis. But even with these improvements the average yearly growth of retail sales over the past 19 months has been 2.4 percent, barely half was it was in the eight years before 2008. 

Sales fell in eight of the Commerce Department’s 12 major categories. Purchases at auto dealers rose 1.1 percent. Non-store retailers, the government category that includes online merchants saw a 1.3 percent jump in receipts.

Department store sales dropped 0.5 percent as American continue to move their spending to the virtual world.

There were pullbacks across a broad range of merchandise. Sales at sporting-goods, hobby, book and music stores fell 2.2 percent. Restaurants and bars saw a 0.2 percent decline in their receipts and building-material suppliers shed 0.5 percent. Sales at electronics and appliance outlets slipped 0.1 percent. Purchases at food and drinks dropped 0.6 percent. 

Retails sales figures are not corrected for price changes.

Sales at gasoline stations sank 2.7%, in July, largely reflecting lower fuel prices and not a drop in consumption.  Gasoline prices rose slightly in June averaging $2.34 for a gallon of regular gas, up from $2.26 in May.  Prices dropped 6 percent in July averaging $2.20 and have remained near 15 year lows.

A separate report from the Labor Department, the producer price index (PPI), showed that wholesale prices fell 0.4 percent in July, the most since last September. They had been expected to rise 0.1 percent after the June jump of 0.5 percent.

There are few price pressures evident at the producer level and the overall consumer price index is likely to remain quiescent. Annual changes in the PPI moved back into the negative at -0.2 percent in July. Over the past 19 months, year over year prices have fallen in 14 months and averaged -0.5 percent a month. 

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Bloomberg





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