Solid US retail sales brighten the picture for consumption

Retail sales rose 0.6% m/m in July, in line with the consensus expectations. The increase was broad based, with solid readings on many core categories boosted by a gain in motor vehicle sales and gasoline stations. Motor vehicle and parts sales grew 1.4% m/m (previous: -1.5%), and gasoline stations reported better-than-expected nominal sales growth of 0.4% m/m (previous: 1.8%). Excluding autos, retail sales rose 0.4% m/m and were revised up for the prior two months. Retail control group sales rose 0.3% m/m in July, a touch below (0.4%) and consensus expectations (0.5%), as May and June results for the series were revised higher. May core sales are now estimated to have risen 0.8% m/m (initial: 0.7%), followed by a 0.2% m/m gain in June (initial: -0.1%).

"Together, we view the revised data as reflecting better momentum for consumer spending through the end of the second quarter. Furniture (0.8% m/m, previous: -1.0%), personal care (0.3% m/m, previous: 0.8%), clothing (0.4% m/m, previous: -0.9%) and eating and drinking establishments (0.7% m/m, previous: 0.5%) all reported solid increases in July, suggesting solid consumer spending will carry through to Q3", says Barclays.

Sales at general merchandise stores fell 0.5% m/m (previous: 0.8%) in July, but this was offset by a large gain in non-store retailers (1.5% m/m, previous: -0.2%). On balance, this morning's report paints a brighter picture of consumer spending in Q2 and suggests gains should continue through upward revisions to core retail sales for May and July suggest consumer spending rose more than initially estimated in Q2.

"These data pushed our tracking estimate of Q2 real consumption growth to 3.1% from 2.9%, boosting our Q2 GDP tracking estimate one-tenth, to 3.0%. Stronger monthly sales at the end of Q2 also provide a better starting point for monthly consumption in Q3. This boosted our estimate of Q3 real consumption growth two-tenths, to 3.2%. Our Q3 GDP tracking estimate rose one-tenth as a result, to 2.6%", notes Barclays.