Monday Update: Retail Sales Pop in July

Posted by Sam Millette

This entry was posted on Aug 19, 2019 1:19:21 PM

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Last week's economic data releases showed a growing economy, with retail sales growth highlighting the continued strength of the American consumer. Despite last week’s market volatility, the economic data releases showed a growing economy, with better-than-expected retail sales growth highlighting the continued strength of the American consumer. This will be a quieter week, with only a few major updates set to be released.

 Last week’s news

We started off the week on Tuesday with the release of July’s Consumer Price Index. It showed growth of 0.3 percent for the month, which brought year-over-year inflation up to 1.8 percent. Higher gas prices combined with higher prices for key areas of the service sector were the major drivers of this faster-than-expected inflation growth. The core measure of consumer inflation, which excludes the impact of gas and food costs, also rose by 0.3 percent during the month. Despite the increase in July, headline consumer inflation still sits comfortably below the Fed’s 2 percent inflation target.

On Thursday, July’s retail sales data came in much better than expected. Sales grew by 0.7 percent during the month, against expectations for 0.3 percent growth. Once again, rising gas prices played a role in this growth. But the major driver came from the nonstore sales category, which was boosted by the annual Amazon Prime Day sales event midmonth. Core retail sales, which strip out the effect of gas and auto prices, grew by an impressive 0.9 percent during the month, indicating strong consumer demand for core goods. This report was very encouraging, as consumer spending is the major driver of overall economic growth. The strong result for July bodes well for third-quarter growth, provided that consumers continue to spend.

On a negative note, the release of July’s industrial production report on Thursday showed a 0.2 percent decline. This disappointing result was due in large part to a 0.4 percent decline in manufacturing output, with most major industries experiencing declines during the month. The slowdown in global trade has hurt demand for American goods abroad. So, while the slowdown in production was disappointing, it is understandable given the current global trade landscape.

Thursday also saw the release of the National Association of Home Builders Housing Market Index, which showed an increase in home builder confidence in August for the second straight month. Prospective buyers ticked up to the highest level since October 2018, which could bode well for future home sales if mortgage rates remain low and draw in more would-be buyers.

Despite the uptick in home builder confidence, actual construction data was more mixed. Housing starts fell by 4 percent in July, against expectations for 0.2 percent growth. Interestingly, multifamily apartment starts declined for the second straight month, while single-family housing starts rose to their highest level since January. Building permits rose by 8.4 percent during the month. The surprising strength of this forward-looking indicator combined with rising home builder confidence could lead to faster housing starts growth going forward.

On Friday, we finished the week on a sour note, with the University of Michigan consumer sentiment survey declining from 98.4 in July to 92.1 in August. Both the current conditions and future expectations indices dropped during the month, as stock market turbulence weighed heavily on consumer confidence and uncertainty surrounding additional tariffs on Chinese goods spooked investors. Consumer spending is highly influenced by consumer confidence, so this will be a key economic indicator to keep an eye on going forward.

 What to look forward to

Wednesday will see the release of July’s existing home sales data. It is expected to show 2.5 percent month-over-month growth, following a 1.7 percent decline in June. Given low mortgage rates and home builder reports of additional foot traffic, a strong showing here would be a positive sign that prospective home buyers have not been scared away by rising home prices.

The minutes from the Fed’s July 31 meeting are set to be released on Wednesday. This was a very closely watched meeting, as the Fed voted to cut the federal funds rate for the first time in more than a decade, marking a shift toward a more supportive stance for the economy. Economists will be reading the minutes carefully to try to gauge the likelihood of potential future rate cuts.

Finally, we will close out the week with the release of July’s new home sales data on Friday. New home sales are forecast to decline by 0.2 percent during the month. Sales rose by 7 percent in June, so this projected decline is nothing to worry about—especially if we see growth in existing home sales, which make up a significantly larger portion of the housing market.

That’s it for this week—thanks for reading! 

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