US retail sales remain flat in July; consumer spending likely to slow in Q3

The advance Census Bureau report showed on Friday that retail sales in the US remained flat in July, worse than expectations of a rise of 0.4 percent. Nonetheless, June’s print was revised upwardly to a rise of 0.8 percent from the earlier print of 0.6 percent rise. Certain weakness recorded in July can be attributed to the surprising strength recorded in the earlier month.

However, the wider weakness is slightly worrisome with consumer spending appearing likely to slowdown from 4.2 percent on sequential basis in the second quarter to around 3 percent in the third quarter, said TD Economics in a research report. This would give lesser support to economic growth in the third quarter, which is now tracking 2.5 percent annualized.

In the months ahead, consumers are expected to return to shopping in spite of the flat reading in July. Prospects of job continue to be resilient with wages starting to rise in earnest. Savings accumulated from cheap gas in the earlier quarters should give an additional boost to disposable income, noted TD Economics.

“While we don't expect retail spending to stall and increasingly turn up, the July report won't inspire much confidence in the economic momentum at this point,” added TD Economics.

Looking into details of July’s retail sales report, sales at gasoline stations dropped 2.7 percent month-on-month. This was a drag on the headline print as gas prices dropped on the month. Stripping gas, sales rose 0.2 percent. Meanwhile, auto dealers gained with sales rising 1.1 percent in nominal terms. Stripping autos and gasoline, core retail sales dropped 0.1 percent on the month.

The ‘control group’, which excludes autos, gas, building materials and food services, remained flat in July. Sporting goods, clothing and food/beverage dropped 2.2 percent, 0.5 percent and 0.6 percent respectively, dragging down core sales.