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Retail Sales Improve and in Retrospect

Retail sales rebounded in July as store and on-line purchases of everything from clothing to cars rose and new information improved the tally in June. 

Consumer purchases jumped 0.6 percent matching the median forecast in the Bloomberg survey of economists and the prior month initially listed as -0.3 percent was revised to flat, indicating that households may be becoming more expansive after two relatively weak quarters.

Sales minus automobiles rose 0.4 percent in July as in June.  The revised June reading, originally 0.1 percent gives a picture of resilient consumer spending. 

Retail numbers are volatile because the initial reporting only includes sales data through the 15th of each month. As the Commerce Depart receives updated information, adjustments are often warranted. Eleven of 13 major product categorizing July saw gains. The sales figures are uncorrected for price changes.

Annual sales were 2.4 percent higher in July up from a 1.8 percent gain in June. Purchases at non-store retailers, the Commerce Department’s term for internet businesses rose 0.2 percent in July, 6 percent on the year.

The relatively positive report should reinforce the case for a rate hike at next month’s Federal Reserve policy meeting. Several Fed board members have indicated that the first Fed Funds increase in eight years is possible, and indeed likely, while others have signaled that caution is still needed.

This week's turmoil in the currency and equity markets caused by the Chinese devaluation of the yuan may weigh on the side of patience and a December rather than September Fed move. 

Core retail sales which exclude food, automobiles, gasoline, and building materials rose 0.3 percent in July following June’s revised 0.2 percent gain, originally issued at -0.1 percent. Analysts had predicted a 0.5 percent increase in July. 

These sales, also called the 'retail sales control group' compare closely with the consumption component used in the Bureau of Economic Analysis GDP calculation. Annually they rose to 2.8 percent fro 2.5 percent in June. 

This retail report combined with June’s relatively strong non-farm payroll numbers, recent small business and consumer confidence statistics and information on June inventories and April and May construction spending may depict enough economic strength for an upward adjustment to the second quarter GDP which is currently listed at a 2.3 percent annual pace. The first revision will be released on August 27th and preliminary estimates are around 3.0 percent. 

However other data including flat June real personal spending, and a negative revision to May's result, weak durable goods orders and stagnant worker compensation numbers including average hourly earnings and personal income which are tracking at about half their historical averages, may have retarded economic performance. 

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Bloomberg

retail aug 13

retail yoy aug 13

retail control aug 13

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