Retail and food services surged 0.6 in July while the original 0.2 percent decline in June was revised upwardly to 0.3 percent. Thus, consumer demand started the third quarter on a strong footing.

Strong Retail Sales Even With Weak Gasoline Sales

Gasoline sales declined 0.4 percent in July after a dropping 1.5 percent in June. However, none of those declines were able to put a dent on consumer demand in either month as retail and food services sales increased an upwardly revised 0.3 percent in June and a strong 0.6 percent print in July. The strength in retail sales was broad based, with motor vehicle and parts dealers’ sales increasing 1.2 percent while building material & garden equipment & supplies dealers’ sales increased 1.2 percent after printing 1.1 percent in June. Even department stores sales, a sector that has been negatively affected by the eruption of online sales, posted a strong 1.0 percent increase for the month. Still, the sector is down 2.7 percent on a year-earlier basis and followed a 0.7 percent decline in June.

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Other weak sectors in July were electronics & appliance stores’ sales, declining 0.5 percent, while clothing & clothing accessories stores sales declined 0.2 percent compared to June.

However, the rest of the sectors were up during the month, portraying a very strong consumer at the end of the second quarter as well as at the start of the third quarter, which is completely contrary to the view we observed by looking at second quarter PCE numbers released several weeks ago.

Furniture & home furniture stores’ sales were up 0.4 percent after increasing 0.5 percent in June, while food & beverage stores sales were up 0.4 percent after declining 0.7 percent in June. Health & personal care stores sales were up 0.4 percent after increasing 0.3 percent the previous month. Meanwhile, sporting goods, hobby, book & music stores’ sales were up 0.3 percent, partially recovering the 0.5 percent decline in June.

The strongest sector in June was the miscellaneous store retailers sector, growing 1.8 percent during the month after declining 1.7 percent in June. Meanwhile, non-store retailers’ sales were up 1.3 percent after a strong 1.0 percent increase in June. This sector was up 10.4 percent on a yearearlier basis.

Control Group Sales Strong in July

The July retail sales report was strong overall and this was also reflected in the retail sales control group aggregate, which goes into the calculation of GDP. This aggregate increased 0.6 percent compared to expectations of a 0.4 percent increase. Furthermore, control group sales were upwardly revised from a 0.1 percent decline in June to an increase of 0.1 percent. This means that not only is Q2 PCE probably going to be revised higher from an already strong 2.8 percent, but that the expectations for PCE during the third quarter are also going to be marked up going forward. That is, both indicators for the consumption of goods and services from the retail sales report are looking promising for the start of the third quarter of the year. It will be interesting to see if they can keep their momentum.

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