Retail sales rose by 0.5% in June – bang on market expectations and marking the fourth straight month of solid gains. Better yet, May data was revised up an impressive 0.5% points to 1.3%.
Sales at gasoline stations rose 0.9%, while those at auto & parts dealers recorded a similar gain (+1.0%). Excluding these two categories, sales were up 0.4% – a hair below the headline print.
Sales at building material stores and food services rose 0.8% and 1.5% respectively – marking the second straight month of gains for both.
Excluding the above categories (gas, autos, building materials, and food services), the so-called ‘control group’ used in calculating GDP was flat on the month – disappointing market expectations for a 0.4% gain. Delving into the details, the control group provided a mixed bag. Sales at health (2.2%), furniture (0.6%) and non-store retailers (1.3%) were up on the month, while falling at general merchandise (-0.8%), clothing (-2.5%) and sporting goods (-3.2%) stores. The latter marks the third consecutive month of declines.
The June data bring the second quarter to a close, with sales up nearly 8% annualized, following a soft 1.8% print in the first quarter.
Key Implications
At face value, this was an undeniably solid report, with overall sales extending the recent string of healthy gains to four months and matching market expectations. The notable upgrade to the May data was another very encouraging element, which raises our expectation for Q2 consumer spending to better than 3% annualized.
A decent gain in real retail sales in June sets up positive momentum for the third quarter. We expect consumer spending will moderate in Q3, but remain solid at close to 2 ½% in real terms. Overall, steady job gains and a tightening labor market which is boosting wages, combined with a boost from tax cuts should see consumer spending remain a key support to growth through the rest of 2018.
