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Weekly Economic Commentary


Weakness of 2012:Q2 Retail Sales Reversed in July

August 14, 2012

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A string of three monthly readings through June suggested that consumers had lost an appetite for shopping, but the July retail sales report shows a strong reversal of this trend. Retail sales rose 0.8%in July after a downwardly revised 0.7% decline in June (previously estimated as a 0.5% drop). The improvement in retails sales was widespread in July, with all major categories posting gains. The 0.8% increase in auto sales contradicts the unit sales numbers published earlier in the month. Unit sales of autos matter for consumer spending numbers in the GDP report and they slipped in July (14.1 million units vs. 14.4 million in June). Excluding autos, retail sales moved up 0.8% in July, after a 0.8% reduction in June. In July, purchases of furniture (+1.1%), apparel (+0.8%), general merchandise (+0.8%), and building materials (+1.0%) advanced. Essentially, these data change the tone of retail sales seen in the second quarter and support expectations of moderate growth in consumer spending in the third quarter.

Chart 1 - 08 14 2014

Gasoline sales rose 0.5% in July, after three consecutive monthly declines, which is most likely related to higher prices. Retail sales excluding autos, gasoline, and building materials, typically referred to as the core of retail sales, increased 0.9% in July, putting the year-to-year increase at 3.8% after a 3.1% increase in June. Although it is only one month’s reading, the year-to-year increase in July is noteworthy because it points to a reversal of a decelerating trend of core retail sales (see Chart 2).

Chart 2 - 08 14 2014

Table 1- 08 14 2014

Food and Core Prices Lift Wholesale Prices in July

The Producer Price Index (PPI) for Finished Goods increased 0.3% in July after a 0.1% gain in June. Despite the 0.4% drop in energy prices, the 0.5% jump in food prices and the 0.4% increase in prices of items excluding food and energy led to an overall gain of wholesale prices in July. According to the Bureau of Labor Statistics, 40% of the increase in the core prices is from the 1.6% hike in prices of light trucks and 50% of the gain in food prices is attributed to higher quotes for beef, veal, and pork. Speaking about food prices, the drought the US is experiencing is most likely to have an impact as higher food prices, with a large part of the gain reflected in consumer prices also in the months ahead. At the earlier stages of production, the core intermediate goods price index (-0.9%) and core crude goods price gauge (-1.1%) fell in July.

Chart 3 - 08 14 2014

Table 2 - 08 14 2014

July Small Business Survey – Fewer Members Indicate Sales as Problematic

The Small Business Optimism Index of the National Federation of Independent Business held nearly steady in July (91.2 vs. 91.4 in June) but it is the lowest since November 2011. Running somewhat counter to the message from the headline index, the percentage of participants indicating that poor sales are the single most important problem fell to 20% in July from 23% in June. This is a major statistic from the survey because sales drive an enterprise. The bottom line is that the NFIB survey results for July are mixed, at best.

Chart 4 - 08 14 2014












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.