Unexpected Strength In Retail Sales

Unexpected strength has not been an overstatement in recent retail sales reports including July's where all major readings easily surpass Econoday's consensus range. Total sales rose 0.7 percent, ex-auto up 1.0 percent, ex-auto ex-gas up 0.9 percent, and the control group up 1.0 percent.

Where to start? First the few weaknesses including auto sales which, as indicated by a dip in previously released unit sales, fell 0.6 percent in the month to extend an uneven run for this component. Sporting goods, a small category, also fell while health & personal care stores, a large category, slipped slightly.

Now acceleration and it's led once again by non-stores, where monthly sales jumped 2.8 percent following gains of 1.9 and 2.3 percent in the two prior months. This component is dominated by e-commerce which is making increasingly greater gains at the expense of brick-and-mortar stores. Department stores have been one of the victims but not in July with a 1.2 percent sales jump. Electronics & appliance stores posted a 0.9 percent gain with clothing stores up 0.8 percent and food & beverage up 0.6 percent. Gasoline stations, benefiting from higher prices, had a strong month with a 1.8 percent gain. Building materials posted a small contribution.

But punctuating the strength and speaking to the underlying discretionary power of the consumer is yet another very strong gain for restaurants, up 1.1 percent following four prior gains of 0.7, 1.1, and 0.7 percent.

The consumer held up second-quarter GDP posting robust and inflation-adjusted annual spending growth of 4.3 percent, a mark that would be difficult to match let alone exceed but that's a possibility given the strong jump out of the gate for July retail sales.