Retail Sales Strength in June Should Be Positive Step for Q2 GDP

While the monthly reporting on retail sales can be rather volatile, this is an important economic component considering that close to 70% of U.S. gross domestic product (GDP) is tied into consumer spending. U.S. retail sales rose more than expected in June with stronger consumer spending. The U.S. Department of Commerce issued a 0.4% gain in June, while the preliminary report from May was revised lower to a 0.4% gain from the 0.5% gain initially reported.

Econoday had a consensus estimate of just 0.1% for June, and Reuters also was calling for a 0.1% gain in June. For the reading on the annualized basis, retail sales were up by 3.4% versus June of 2018.

There is a core reading on retail sales that excludes automobiles, gasoline, building materials and food services. This figure was up by 0.7% in June, and May’s core reading was revised to 0.6% from a preliminary report of a 0.4% gain.

There was a 1.7% gain for the non-retailers, which is Amazon and other online and catalog sales, which have been a continued drag on traditional retail sales.

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Considering strong increases in May and April, June’s better-than-expected retail sales level should have a positive backdrop for second-quarter GDP due at the end of this month. That would help to blunt some of the very weak retail sales data from the first quarter of 2019.

Along with a slowing global growth story, the U.S. economy is dealing with a weaker business investment environment, and it was dealing with an inventory overhang that had helped to prop up GDP in the first quarter from the building of inventories. While the retail sales increase is a net positive for GDP, the number is not very likely to move the needle on the expectation that the Federal Reserve and Chair Jerome Powell will lower interest rates on the July 31 announcement by the Federal Open Market Committee.

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