U.S. Retail Sales Top Estimates In June

by Ike Obudulu Posted on July 16th, 2019

U.S. retail sales exceeded projections in June on broad gains across most categories, indicating consumption was already healthy before an anticipated interest-rate cut this month.

The value of overall sales rose 0.4% after a downwardly revised 0.4% increase the prior month, Commerce Department data showed Tuesday. That compared with a projected gain of 0.2% in Bloomberg’s survey of economists.

Sales in the “control group” subset, which excludes food services, car dealers, building-materials stores and gasoline stations, increased 0.7%, also exceeding projections. Some analysts view the measure as a more accurate gauge of consumer demand. Excluding automobiles and gasoline, retail sales increased 0.7%.

The rebound in sales underscores Fed Chairman Jerome Powell’s view that consumer spending and finances remain healthy amid a tight labor market that’s been supporting the expansion. Strength at retailers may also complicate the debate for policy makers as they gather July 30-31 to chart their course amid growing headwinds from slowing global growth to trade tensions.

Powell in congressional testimony last week left it all but certain that the Fed is poised to cut rates for the first time in a decade. Still, he told lawmakers that consumer spending has reliably driven growth and rebounded to a solid pace after first-quarter weakness.

The initial reading of second-quarter gross domestic product is due July 26. A survey this month showed growth probably slowed to a 1.8% annualized pace from 3.1%, though consumption was seen picking up.

Broad Strength

Eleven of 13 major retail categories increased, led by a 1.7% increase in nonstore retailers, which include online vendors. Electronics and appliance stores and gasoline stations both fell.

Filling-station receipts decreased 2.8%, the most since December, as gasoline prices fell a second month. The figures aren’t adjusted for price changes, so lower retail sales in the category could reflect changes in gasoline costs, sales, or both.

Sales at automobile dealers climbed 0.7%, the same pace as the prior month. Industry data from Wards Automotive Group previously showed unit sales unchanged in June after a May rebound.

A separate Labor Department report Tuesday showed import prices decreased 0.9% in June from the prior month, as export prices fell 0.7%. Data on business inventories are due for release at 10 a.m. in Washington.

Sales at department stores fell 1.1% after a 0.6% decline the prior month. Estimates in economists survey for retail sales ranged from a decline of 0.2% to a gain of 0.5%.The retail-sales data don’t capture all household purchases and tend to be volatile. Personal-spending figures, which also span services, will offer a fuller picture of U.S. consumption in data due at the end of the month.

Retail Sales Also Called Advance Retail Sales

The U.S. Census Bureau conducts the Advance Monthly Retail Trade and Food Services Survey to provide an early estimate of monthly sales by kind of business for retail and food service firms located in the United States.

The retail sales report captures in-store sales as well as catalog and other out-of-store sales. The report also breaks down sales figures into groups such as food and beverage, clothing and automobiles.

Each month, questionnaires are mailed to a probability sample of approximately 5,500 employer firms selected from the larger Monthly Retail Trade Survey (MRTS).

Advance sales estimates are computed using a link relative estimator. For each detailed industry, the Census Bureau computes a ratio of current-to-previous month weighted sales using data from units for which we have obtained usable responses for both the current and previous month.

For each detailed industry, the advance total sales estimates for the current month is computed by multiplying this ratio by the preliminary sales estimate for the previous month (derived from the larger MRTS) at the appropriate industry level. Total estimates for broader industries are computed as the sum of the detailed industry estimates.

For a limited number of nonresponding companies that have influential effects on the estimates, sales may be estimated based on historical performance of that company. The monthly estimates are benchmarked to the annual survey estimates from the Annual Retail Trade Survey once available. The estimates are adjusted for seasonal variation and holiday and trading day differences.

Core Retail Sales

Core retail sales refers to aggregate retail sales in the U.S. excluding automobile and gasoline sales, which are excluded due to their volatility.

Automobile sales account for about 20% of Retail Sales, but they tend to be very volatile and distort the underlying trend. The Core data is therefore thought to be a better gauge of spending trends.

Core retail sales data is used extensively by various government bureaus to calculate GDP, develop consumer price indexes and analyze current economic activity, while the Federal Reserve uses the numbers to assess recent trends in consumer purchases.

Core retail sales is also a strong indicator of economic health and whether it is contracting or expanding. Retail sales make up nearly one-half of personal consumption, which in turn accounts for nearly 70 percent of GDP. Retail sales, in terms of direct economic activity, accounts for almost one-third of GDP.

Retail Sales Data vs. Core Retail Sales Data

The difference between the U.S. retail sales numbers and U.S. core retail sales data is that core retail sales excludes autos and gasoline. Auto and gasoline components are excluded because they are often very volatile in price fluctuations. The Census Bureau releases retail sales data, for month over month (MoM) and year over year (YoY) percentage changes. MoM data is the more important of the two as this data series is more likely to show a surprise or unexpected reading; markets are also more likely to react to deviations from expectations in these numbers.

However, core retail sales data is released as month to month changes only. Data is also collected for a Retail Sales Control Group MoM change; this group excludes autos, gasoline and construction materials. All retail sales data is released monthly, approximately two weeks after the target month.

Why Markets Care About Retail Sales Report

Retail sales reports are a key economic indicator and reflect statistics culled from thousands of retail outlets and food service entities. Consumer spending accounts for two-thirds of GDP; therefore, retail sales are considered a major driver of the health of the U.S. economy.

Because retail sales are a measure of consumer demand for finished goods, they are an indicator of the pulse of an economy and its projected path toward expansion or contraction.

The percentage increases or decreases also give a good indication of how fast the economy is contracting or expanding. Very strong or weak retail sales can also put upward or downward pressure on prices

As a leading macroeconomic indicator, healthy retail sales figures typically elicit positive movements in equity markets.

Retail sales figures are vital to stock investors and particularly those who directly invest in retail companies. The figures are also a big component of the total gross domestic product (GDP) in the United States, so any extended drop-offs in retail spending can trigger a recession by lowering tax receipts and forcing companies to reduce their workforce.

As a broad economic indicator, the retail sales report is one of the timeliest and provides data that is only a few weeks old. Individual retail companies often provide their own sales figures at the same time per month, and their stocks can be volatile at this time as investors process the data.

Retail sales is the primary gauge of consumer spending, which accounts for the majority of overall economic activity.

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