US July Retail Sales Rise Modestly

• Retail sales in July 2013 rose 0.2% in the month, which was slightly weaker than the 0.3% expected.

• The gain in June retail sales was revised upward to 0.6% from the previously estimated increase of 0.4%.

• Expectations of some moderation in monthly retail sales growth were premised on earlier reports of a decline in July unit auto sales with the 1.0% drop reported this morning for motor vehicle dealerships slightly larger than expected.

• Sales at gasoline stations rose 0.9% and were helped by gains in gasoline prices in recent months.

• Control retail sales, which excludes sales at auto dealerships, gasoline stations, and building material stores (where sales fell 0.4% in the month), rose a slightly stronger than expected 0.5%.

• Despite the modest slowing in monthly retail sales growth in July, we still expect real consumer spending to strengthen in the third quarter of 2013 to an annualized 2.6% from the 1.8% recorded in the second quarter. This partly reflects an expectation of pick-up in consumer spending on services, which is not captured in the retail sales data. Strengthening consumer spending is expected to be a factor helping the US economy return to above-potential growth during the second half of 2013 and through 2014. As the Fed becomes confident that this is playing out, it is expected to start pulling back on asset purchases.

Retail sales in July 2013 rose a slightly smaller than anticipated 0.2% in the month relative to market expectations of a 0.3% increase. Some offset was provided by the increase in June being revised upward to 0.6% from the previously estimated gain of 0.4%. Market expectations of a slowing in July retail sales growth were largely premised on earlier reports of a slowing in motor vehicles sales in the month. This was confirmed in today’s release although the 1.0% drop in sales at motor vehicle dealerships was slightly larger than expected.

Expectations of a slowing in sales were also premised on indications that less upward pressures in gasoline prices would slow the increase in nominal receipts from gasoline stations. In the event, however, the pace of sales at this retail outlet rose marginally to 0.9% from 0.6%. Building materials sales continued to decline in July by 0.4% although the decrease in June was lowered to 1.6% from the previously estimated 2.2%.

The so called ‘control’ measure, which excludes sales at motor vehicle dealerships, gasoline stations, and building material stores, rose 0.5% in the month. This was marginally higher than the 0.4% increase that had expected. The July increase was led by gains in sporting goods stores (1.0%) and clothing stores (0.9%), which more that offset the 1.4% drop in sales at furniture stores. The decline in furniture store sales only partially retraced the 2.5% surge in June.

Despite the modest slowing in monthly retail sales growth in July, we still expect real consumer spending to strengthen in the third quarter of 2013 to an annualized 2.6% from the 1.8% recorded in the second quarter. In part, this reflects an expectation of greater strength in retail sales to emerge for the remainder of the quarter. As well, it reflects an assumed pick-up, which is not captured in the retail sales data, in consumer spending on services. Strengthening consumer spending is expected to be a factor helping the US economy return to above-potential gross domestic product (GDP) growth during the second half of 2013 and through 2014. As the Fed becomes confident that this is playing out, then it is expected to start pulling back on asset purchases. Our forecast assumes that the so called tapering could begin as early as October with a full cessation of purchases likely by the middle of 2014.

 

RBC

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