Advance retail sales were better than anticipated in June, rising 0.6%, following a 0.2% increase in May and compared with expectations for a 0.1% increase. Sales are now 2.7% higher than a year ago. Excluding autos, sales were also better than expected, rising 0.7% after a 0.4% rise in May. Sales for this category are now up 3.2% from one year ago. Motor vehicle and parts sales increased by more than feared, up 0.1%, also after a 0.5% decline in January; they are now 1.0% higher than a year ago.
The most meaningful measure of retail sales activity excludes gasoline and auto sales (to negate the volatile influences of gasoline prices and auto financing incentives). Sales at gasoline stations increased by 1.2%, following a 2.2% rise in May, though are 9.6% lower than a year ago. The strength in core sales was mainly focused at stores for building materials and gardening equipment (3.9%), nonstore retailers (1.1%), and miscellaneous stores (0.9%). Any weakness in the month came from decreases at clothing and clothing accessories stores and foodservice and drinking places. Excluding gasoline and autos, retail sales were 0.7% higher on the month, following a 0.2% rise in May, and were 4.4% higher than a year ago. Lastly, non-auto, non-gasoline station sales, less building and gardening equipment, were 0.4% higher in the month and 4.4% higher annually.
There is little doubt that consumer spending has been patchy this year, though in aggregate economists have, so far, only fractionally lowered their expectations for the year. The consensus forecast for real personal consumption expenditure at the start of the year was 2.8%; it is now expected to be 2.6% in 2016. What is crucially important here, however, is to what extent other areas of consumer spending improve now that auto sales finally seem to be rolling over and to what extent consumption might be affected by the increase in energy prices. From this perspective, today’s report was encouraging in that the important housing-related spending may be starting to pick up after a very poor start to the year. Overall, this was a solid report and reflects strong consumer confidence and an improving employment situation.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.