July Retail Sales

After the downwardly revised decline of 0.7 percent in June, retail sales had a nice comeback in July of 0.8 percent in the latest tally from the Census Bureau.  Not only was the headline figure encouraging, but the increase was broad-based.  This seems to be flying in the face of recent surveys about consumer attitudes.  The polls suggest Americans are pessimistic about the future which does not seem to be a perspective conducive of spending.   But their actions in July did not confirm this outlook.  Perhaps retailers not only require shoes and shirts, but they also want attitudes checked at the door.

This indicator is an important one because it represents about one-third of the spending consumers do in a year.  Parts of this report feed directly into our nation’s official gross domestic product figure, so the positive reading in these items will help with the nation’s economic growth rate.  Leading overall retail sales higher were auto purchases.  This is encouraging to some extent because the Consumer Price Index shows that automobile prices fell in July; retail sales do not adjust for price movements, so there must have been an increase in the number of vehicles sold in order to see auto sales increase.  It should be noted that the Producer Price Index reading on automobiles was higher.  This means dealer’s costs went up, so the increased sales at lower prices may have hurt their margins in July.

This has been an indicator under tremendous stress recently. The year-over-year growth has been declining since mid-2011.  This tick-up was enough to increase the year-over-year change to 4.1 percent from 3.5 percent in June. But to put this in perspective, the year-over-year growth was 9.1 percent in July of 2011, so the growth rate has slowed by over half.  It will take increasing domestic consumption of goods to keep this economy motoring forward because the rest of the world seems to have too many issues to be considered reliable buyers of our manufactured products.   (by C. Cox)