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Economic Updates

July Advanced Retail Sales

HEADLINES

Retail sales rose 0.7% in July, exceeding market expectations of a 0.3% increase and starting the third quarter on very solid footing. June was revised lower to 0.3% from 0.4%. The numbers in this report are strong.

WHY DO I CARE?

Retail sales are an early indicator of strength in consumer demand. Consumer demand is the largest component of GDP, accounting for two-thirds of total economic activity in the US. This report gives a clue as to what the Personal Consumption Expenditures figure, which includes the purchase of services, will look like when we see it later in the month. The only sector that had a concerning performance was motor vehicle sales, which fell 0.6% In the current economic environment, this may seem uneventful, but car sales are a fundamental element of the strength of the economy. Despite this, the third quarter is off to a strong start.

WAS THERE A BIG SURPRISE?

The numbers show a surprising strength in the economy. Demand remains solid along with employment and wages. The downward revisions to June are relatively minor. As we noted in from a demand standpoint, and the July report shows that strength is carrying forward into our GDP economic update, the 2nd Quarter GDP figure was stronger than the 2.1% indicated the third quarter. Details: The report shows relatively broad strength. Besides auto sales, other areas of weakness were hobby stores (including sporting goods) and drugstores. Meanwhile, nonstore (i.e., online) sales were up 2.8%, and even department stores were up 1.2%.

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