Drilling into retail sales data shows a solid start to Q3 goods consumption


Todays’ retail sales data was a mixed bag with a stronger control group but weaker revisions. CIBC characterized the report as showing a drop in gasoline sales due to lower pricing and a pickup elsewhere.

The control group of sales, which excludes gasoline, autos, restaurants, and building materials, rose by 0.8%, above the consensus expectation of 0.6%, driven by a jump in online shopping. That implies moderate growth in that group in volume terms, which feeds more directly into ex. cars goods consumption in GDP.

After adjusting for prices, the control group rose 0.4%, which is a healthy (worrisome?) 8.0% above its pre-pandemic trendline, according to CIBC.

One other curiosity they highlight in the report is the contrast in vehicle sales to reported data from automakers.

“The drop in vehicle sales was in contrast to the earlier reported growth in unit sales, highlighting either a shift in
demand to lower priced cars, or the decline in used car prices that nominal spending on such vehicles,” they write reduced.

There’s pent up demand for autos that they expect to sustain while other goods slow.

Goods consumption appears to be off to a solid start in the third quarter, but we don’t expect
the momentum to be sustained, particularly once we get past clearance sales on overstocked items. Auto sales could be
an outlier as supply chain issues slaughter.

TD says the Fed will welcome the slowdown in overall sales but will want to see more. They also highlighted the impact of Prime Day and how building materials are holding up, which is something Home Depot also emphasized.

Lower prices at the pump contributed to softer growth in today’s report, despite freeing up some money to be spent elsewhere. Consumers directed their attention to bargains during Amazon’s “biggest Prime Day Event ever”, which, with $3 billion in sales, contributed handsomely to headline growth this month. Despite softness in the housing market, sales at building materials and equipment stores came in at one percent in real terms suggesting that consumers continue to devote a sizeable share of spending to home improvements.

In terms of implications, they fall on the dovish side of the FOMC debate, which is split nearly 50/50 in the Fed funds market.

Like July’s CPI reading, today’s release suggests things are moving in the right direction, but it’s still too early for the Fed to pivot away from the hiking cycle. We maintain the view that a 50 basis point hike will be considered enough in September but will have more clarity after the August jobs and inflation data give us a better understanding of whether the recent moderation has more legs.

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