Economist's Insights

An All-Around Good Day for the Economic Data

Aug 15, 2017

Retail Sales Finally Show Signs of Life with Stronger-Than-Expected July and Positive Previous Months’ Revisions

Retail sales in July were much stronger than expected on a stand-alone basis and even better when considering prior months’ revisions. Headline retail sales rose 0.6%, doubling estimates and marking the best month of the year. Excluding sales of autos (+1.2%) and gasoline (-0.4%), sales improved 0.5% in July (expected +0.4%) in their second biggest jump of 2017. At the core level – which excludes auto dealers, gasoline, and building materials among other things – sales rose 0.6% (expected +0.4%), the best result since March. In the details of the report, the results were mixed within categories but the overall strength was relatively broad-based. Out of the 13 categories, 10 experienced sales growth when compared with June levels. The biggest positive contributions came from the autos, online retailing, and building materials categories. Sales at gasoline stations detracted the most while sales of electronics and clothing also declined. As to the revisions, each category was revised higher for June. Headline sales in June were reported up 0.3%, down 0.2% previously. Excluding autos and gasoline, sales were up 0.3% in June, down 0.1% previously. And sales at the control group were reported up 0.1% in June, down 0.1% in the initial release. Bottom line: The retail sales data series had been extremely disappointing so far in 2017 and had created some concern of a fading consumer. July’s report topped estimates across the board, and when considering the positive previous months’ revisions, finally offers some reprieve for retail sales. Although it’s just one month of data for the third quarter, the net effect is a stronger-than-expected trajectory heading into 3Q.

No Let Up in the Later Data

Following the surprisingly strong retail sales and Empire State Manufacturing reports, the NAHB’s latest home builder index and the Census Bureau’s business inventories data were both stronger than expected. The home builder index rose unexpectedly in August on improvement in all three major subcomponents. The index improved from 64 in July (an eight-month low) to 68 (three-month high) in August. The real strength of the report was in the metrics tracking current sales and future sales expectations; both of which were the best since May (expectations matched their highest since June 2005). In the inventory series, business inventory growth of 0.5% MoM outpaced estimates and was the strongest monthly result since November.