Retail sales gained 1.0% month-on-month (m/m) in June – slightly above the consensus forecast (+0.8% m/m) – and accelerating from May’s reading, which was revised up to -0.1% m/m from -0.3% m/m reported earlier.
Sales at autos & parts dealers rose by 0.8% m/m even after May’s upward revision to -3.0% from a decline of 3.5% previously reported. Excluding autos, retail sales were up 1.0% m/m in June, above the consensus forecast of 0.6% m/m.
Sales at gasoline stations continued to rise in June, gaining 3.6% m/m. However, gas prices were up 11% m/m last month, implying price adjusted sales were down sharply. Building materials reported a modest pullback of -0.9% m/m.
Excluding the above categories, sales in the “control group” that are used in calculating personal consumption expenditure (and GDP), were up 0.8% m/m. Within the group, the biggest contributors to growth were sales at non-store retailers (+2.2% m/m), miscellaneous stores retailers (+1.4% m/m), furniture & electronics/appliance stores (+1.0% m/m), and food services & drinking places (+ 1.0% m/m).
Within categories that reported losses, the largest drag came from clothing & accessory stores (-0.4% m/m), while department stores and health & personal care also reported losses.
Key Implications
Retail sales reversed some of May’s losses, finishing the quarter 2.3% higher. Yet, most of this gain comes from higher prices which continue to have an outsized impact on the headline reading. As their purchasing power continues to dwindle, consumers are clearly cutting back on their shopping . Our estimates of real activity point to depressed sales at gas stations, food stores, auto dealerships and apparel stores. Even sales at restaurants – the only services category in today’s report – pulled back in real terms in June.
Still, we think that spending on experiences at the expense of discretionary goods will continue to support consumption expenditures. We now expect PCE to grow somewhere close to 1% (annualized) in the second quarter, roughly 2 percentage below our earlier estimates.
Taken alongside June’s CPI reading, today’s release suggests that the Fed will continue to move more forcefully on raising rates at their next meeting on July 27th. The question is whether 75 basis points will be considered enough. Today’s stronger-than-expected report may give the Fed more reason to hike by a full percentage point. At present, market pricing is split down the middle on whether the Fed will move by 75bps or 100bps.
