Retail Sales Rise, Beat Consensus

Demand for autos has cooled but not overall retail sales which rose 0.5 percent in July to easily top Econoday's consensus range where the high forecasts were only at 0.3 percent. A downward revision to June, however, is an offset, now at a 0.2 percent gain vs an initial 0.5 percent. This will trim the second estimate of second-quarter GDP but the strong gain for July will lift early estimates for third-quarter GDP.

Motor vehicle sales did manage, despite July's downturn in unit sales, to post a gain of 0.2 percent but the downward revision to June is centered here, now at only a 0.1 percent for this component vs an initial jump of 0.9 percent. But restaurant sales, which like autos are a discretionary category, rose a very strong 1.3 percent which is on top of 1.6 and 2.8 percent gains in the prior two months. Also very strong are sales for e-commerce as nonstore retailers posted a 0.8 percent July gain following a 0.7 percent rise in June.

Gasoline sales are also positive, up 0.8 percent in July and probably reflecting strength in summer driving demand, not just changes in prices. Apparel sales popped back up in July as did department store sales. Building materials, however, were flat with June sales for this category revised sharply lower to only a 0.1 percent gain. This along with a 0.5 percent decline in furniture sales are negative indications for residential investment.

But this report is not about negatives but positives -- and that is strength in the central driver of the economy which is consumer spending and which is getting a major boost from strength in the labor market.