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Weekly Economic Commentary


July Retail Sales Data Support Current Forecast of Mild Growth in 2011:Q3

August 12, 2011

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Retail sales rose 0.5% in July, after an upwardly revised 0.3% increase in the prior month. Retail sales estimates for May and June show upward revisions. During the three months ended July, retail sales have moved up 2.8% vs. a 1.7% gain in the previous 3-month period (see Chart 1). This is a small but still noteworthy improvement. Gasoline sales rose 1.6% in July after a 1.7% decline in June, which is a largely price related change. Purchases of building materials count in the computation of GDP but they are not included in consumer spending. Auto sales increased 0.4% in July; but unit auto sales matter in GDP computations. Auto sales rose to 12.2 million units in July vs. 11.6 million units in June. We typically, exclude purchases of autos, gasoline, and building materials for the reasons just cited. Excluding autos, building materials, and gasoline, retail sales increased 0.4%, matching the June reading. This component of retail sales also shows a mild increase in the three months ended July (+4.1% vs. +3.6% during 3-months ended June, see Chart 1). In July, the pickup in sales of apparel, furniture, and electronics contributed to the jump of the headline number.

Chart 1 - 08 12 2011


Table 1 - 08 12 2011

In related news, the University of Michigan Consumer Sentiment Index declined sharply in the preliminary August survey to the lowest level since May 1980. The Consumer Sentiment Index fell to 54.9 from 63.7 in July; this index has dropped 19.4 points in the last three months. The Expectations Index declined to 45.7, the lowest since May 1980 (45.3). The Current Conditions Index dropped 6.5 points to 69.3. These readings are disappointing and suggest a setback to consumer spending, albeit the fact that consumer sentiment measures have shown a weak link to consumer expenditures in recent years.


Chart 2 - 08 12 2011

Going forward, overall demand conditions, inclusive of the consumer spending trajectory, hold the key to whether the economy will post robust self-sustained growth. As seen in Chart 3, final sales show a significant decelerating trend in the first-half of the year. All major components of private sector spending – consumer expenditures, equipment and software spending, exports, and residential investment expenditures – slowed in the first-half of the year. The bottom line is that the U.S. economy is still struggling to attain a pace of momentum that is sufficiently strong to bring down the unemployment rate even after two years of economic recovery.


Chart 3 - 08 12 2011








The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.