There were several important reports on the U.S. economy released this morning. First, data from the Census Bureau showed that advance estimates of retail and food services sales for July totaled $457.7 billion, basically unchanged from June and much worse than the 0.4 percent gain economists had expected. Over the past year, headline retail sales have risen by just 2.3 percent, one of the slowest rates of annual growth seen during the recovery, although cheaper energy prices have been a big factor behind this. Core retail sales, which exclude the volatile autos and gasoline components, fell by 0.1 percent last month, the first sequential decline since January. Much of the weakness in July was due to softer sporting goods and department store sales, and the uptick in U.S. restaurant sales from earlier this year appears to have mostly fizzled out. Non-store retailers like Amazon, though, were a clear bright spot last month, rising by 1.3 from June and 14.1 percent over the past year. However, this was still an overall disappointing report that will likely cause analysts to lower their estimates for third quarter U.S. gross domestic product (GDP) growth. Moreover, retail sales will probably need to have risen at an annualized 4-5 percent in the second half of 2016 for GDP to come close to the Fed's growth projection of 2 percent. That may seem difficult to achieve right now but it is still far too early to call a sustained pullback in consumer spending, particularly given the solid jobs data.
Next, the consumer sentiment index from the University of Michigan lifted to 90.4 in the first half of August, a smaller rebound than expected and one of the lower readings of the past year. Americans’ expectations for the future improved markedly this month but their views of current economic conditions deteriorated. Much of the weakness in the near-term outlook was due to consumers’ concerns about personal finances, with most of the pessimism being found among younger respondents who cited “higher expenses than anticipated as well as somewhat smaller expected income gains.” Looking ahead, concerns about the long-term impact of Brexit have largely faded and been replaced by worries about the upcoming election and its uncertain effect on the economy. Richard Curtin, director of the Michigan Survey of Consumers, added that “overall, the data remains consistent with real personal consumption expenditures improving at an annual rate of 2.6 percent through mid-2017, with new and existing home sales also benefitting from low mortgage rates.”
Elsewhere, data from the Bureau of Labor Statistics (BLS) showed that wholesale inflation pressures in America cooled last month, as the producer price index for final demand (PPI-FD) fell by 0.4 percent. This was well below the 0.1 percent gain economists had expected and the first month-over-month decline since March. “Core” PPI-FD, which excludes the more volatile food and energy components, also fell in July (-0.3 percent), due largely to weakness in the services sector related to declining margins for apparel, jewelry, footwear, and accessories retailing. Health care services costs, though, jumped by 0.3 percent in July, the largest gain since October. This particular component is worth monitoring because it is used in the measure of consumer inflation (PCE) preferred by officials at the Federal Reserve.
Sources: Econoday, Twitter, Bloomberg, ZH, U.S. Doc, U.S. BLS, UoM, WSJ, FRBSLPost author: Charles Couch