Washington, D.C., USA: Advance estimates of U.S. retail and food services sales for July 2018, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $507.5 billion, an increase of 0.5 percent (±0.4 percent) from the previous month, and 6.4 percent (±0.5 percent) above July 2017.
A median survey of economists forecast retail sales to rise 0.4% month-on-month in June
Total sales for the May 2018 through July 2018 period were up 6.3 percent (±0.5 percent) from the same period a year ago. The May 2018 to June 2018 percent change was revised from up 0.5 percent (±0.4 percent) to up 0.2 percent (±0.2 percent).
Retail trade sales were up 0.4 percent (±0.5 percent) from June 2018, and 6.0 percent (±0.5 percent) above last year. Gasoline Stations were up 22.2 percent (±1.6 percent) from July 2017, while Nonstore Retailers were up 8.7 percent (±1.4 percent) from last year.
The stronger than expected retail sales growth in July was partly due to a modest increase in sales by motor vehicle and parts dealers, which edged up by 0.2 percent after inching up by 0.1 percent in June.
Excluding the increase in auto sales, retail sales climbed by 0.6 percent in July after rising by 0.2 percent in June. Ex-auto sales had been expected to rise by 0.3 percent.
The report showed significant sales growth at clothing and accessories stores, food services and drinking places, and department stores.
Sales by non-store retailers also advanced by 0.8 percent, partly reflecting Amazon’s (AMZN) record-breaking Prime Day sale.
Closely watched core retail sales, which exclude automobiles, gasoline, building materials and food services, climbed by 0.5 percent in July after a revised 0.1 percent dip in June.
Compared to the same month a year ago, retail sales were up by 6.4 percent in July versus the 6.1 percent year-over-year increase in June.
In a separate report on Wednesday, the Labor Department said nonfarm productivity, which measures hourly output per worker, rose at a 2.9 percent annualized rate in the April-June quarter. That was the strongest rate since the first quarter of 2015.
Data for the first quarter was revised lower to show productivity increasing at a 0.3 percent pace instead of the previously reported 0.4 percent rate. Economists had forecast productivity growing at a 2.3 percent rate in the second quarter. Compared to the second quarter of 2017, productivity increased at a rate of 1.3 percent.
The government also revised data going back to 1947, which did not materially change the picture of lackluster productivity growth, though unit labor costs were stronger than previously estimated in 2017 because of upward revisions to hourly compensation.
The annual rate of productivity growth from 2007 to 2017 was revised up 0.1 percentage point to a rate of 1.3 percent.
Unit labor costs, the price of labor per single unit of output, fell at a 0.9 percent pace in the second quarter. That was the weakest pace since the third quarter of 2014. First-quarter growth in unit labor costs was revised up to a 3.4 percent rate from the previously reported 2.9 percent pace.
Labor costs increased at a 1.9 percent rate compared to the second quarter of 2017, pointing to moderate wage inflation.
Retail Sales Also Called Advance Retail Sales
The U.S. Census Bureau conducts the Advance Monthly Retail Trade and Food Services Survey to provide an early estimate of monthly sales by kind of business for retail and food service firms located in the United States.
The retail sales report captures in-store sales as well as catalog and other out-of-store sales. The report also breaks down sales figures into groups such as food and beverage, clothing and automobiles.
Each month, questionnaires are mailed to a probability sample of approximately 5,500 employer firms selected from the larger Monthly Retail Trade Survey (MRTS).
Advance sales estimates are computed using a link relative estimator. For each detailed industry, the Census Bureau computes a ratio of current-to-previous month weighted sales using data from units for which we have obtained usable responses for both the current and previous month.
For each detailed industry, the advance total sales estimates for the current month is computed by multiplying this ratio by the preliminary sales estimate for the previous month (derived from the larger MRTS) at the appropriate industry level. Total estimates for broader industries are computed as the sum of the detailed industry estimates.
For a limited number of nonresponding companies that have influential effects on the estimates, sales may be estimated based on historical performance of that company. The monthly estimates are benchmarked to the annual survey estimates from the Annual Retail Trade Survey once available. The estimates are adjusted for seasonal variation and holiday and trading day differences.
Core Retail Sales
Core retail sales refers to aggregate retail sales in the U.S. excluding automobile and gasoline sales, which are excluded due to their volatility.
Automobile sales account for about 20% of Retail Sales, but they tend to be very volatile and distort the underlying trend. The Core data is therefore thought to be a better gauge of spending trends.
Core retail sales data is used extensively by various government bureaus to calculate GDP, develop consumer price indexes and analyze current economic activity, while the Federal Reserve uses the numbers to assess recent trends in consumer purchases.
Core retail sales is also a strong indicator of economic health and whether it is contracting or expanding. Retail sales make up nearly one-half of personal consumption, which in turn accounts for nearly 70 percent of GDP. Retail sales, in terms of direct economic activity, accounts for almost one-third of GDP.
Retail Sales Data vs. Core Retail Sales Data
The difference between the U.S. retail sales numbers and U.S. core retail sales data is that core retail sales excludes autos and gasoline. Auto and gasoline components are excluded because they are often very volatile in price fluctuations. The Census Bureau releases retail sales data, for month over month (MoM) and year over year (YoY) percentage changes. MoM data is the more important of the two as this data series is more likely to show a surprise or unexpected reading; markets are also more likely to react to deviations from expectations in these numbers.
However, core retail sales data is released as month to month changes only. Data is also collected for a Retail Sales Control Group MoM change; this group excludes autos, gasoline and construction materials. All retail sales data is released monthly, approximately two weeks after the target month.
Why Markets Care About Retail Sales Report
Retail sales reports are a key economic indicator and reflect statistics culled from thousands of retail outlets and food service entities. Consumer spending accounts for two-thirds of GDP; therefore, retail sales are considered a major driver of the health of the U.S. economy.
Because retail sales are a measure of consumer demand for finished goods, they are an indicator of the pulse of an economy and its projected path toward expansion or contraction.
The percentage increases or decreases also give a good indication of how fast the economy is contracting or expanding. Very strong or weak retail sales can also put upward or downward pressure on prices
As a leading macroeconomic indicator, healthy retail sales figures typically elicit positive movements in equity markets.
Retail sales figures are vital to stock investors and particularly those who directly invest in retail companies. The figures are also a big component of the total gross domestic product (GDP) in the United States, so any extended drop-offs in retail spending can trigger a recession by lowering tax receipts and forcing companies to reduce their workforce.
As a broad economic indicator, the retail sales report is one of the timeliest and provides data that is only a few weeks old. Individual retail companies often provide their own sales figures at the same time per month, and their stocks can be volatile at this time as investors process the data.
Retail sales is the primary gauge of consumer spending, which accounts for the majority of overall economic activity.
Other U.S Economy News : Business Inventories
U.S. business inventories barely rose in June and the inventory-to-sales ratio fell to more than a 3-1/2-year low, suggesting businesses would need to ramp up the accumulation of stock, which would boost economic growth in the third quarter.
The Commerce Department said on Wednesday that business inventories edged up 0.1 percent after a downwardly revised 0.3 percent increase in May.
June’s gain in inventories, which are a key component of gross domestic product, was in line with economists’ expectations. Inventories were previously reported to have increased 0.4 percent in May.
Other U.S Economy News : U.S. Home-Builder Confidence Fell in August
A gauge of U.S. home-builder confidence fell in August after plateauing in July and declining for much of 2018.
The National Association of Home Builders said on Wednesday its index that measures confidence in the market for new single-family homes fell to 67 in August from 68 in July.
The index has now declined in six out of the last eight months, as supply constraints, such as lack of buildable lots and increasing construction material costs, continue to weigh on the housing market.
Economists consensus had expected a reading of 67.
“The good news is that builders continue to report strong demand for new housing, fueled by steady job and income growth along with rising household formations,” said NAHB Chairman Randy Noel. “However, they are increasingly focused on growing affordability concerns, stemming from rising construction costs, shortages of skilled labor and a dearth of buildable lots.”
Nationwide home building dropped a sharp 12.3% in June from the prior month, the largest monthly percent drop in about a year and a half, driven by construction declines in all regions of the U.S. for almost all types of housing. Meanwhile, overall existing-home sales slumped in the second quarter despite what was likely the strongest period for U.S. growth in years.
Though low unemployment and strong household confidence are supporting demand for new homes, the cost to buy a house is pricing some consumers out of the market, which has been factoring into homebuilder sentiment in the last year.
Market Reaction To Economic Reports
U.S. stocks opened lower Wednesday as investors weighed the latest trade tensions and an accelerating selloff in industrial metals.
The Dow Jones Industrial Average dropped 135 points, or 0.5%, to 25165 shortly after the opening bell, while the S&P 500 declined 0.6%. Both indexes were on track for a fifth decline in the past six sessions. The Nasdaq Composite fell 0.8%.
Although U.S. stocks have largely shaken off fears that tariffs will weaken the global economy, investors have recently grown anxious that a currency rout in Turkey and other emerging markets might spread. Adding to worries: base metals like copper, widely used in construction and manufacturing, have plummeted, a bearish sign to analysts that use them as an economic indicator.
On Wednesday, Turkey’s President Recep Tayyip Erdogan took another step in the U.S.-Turkey spat, raising tariffs on some U.S. imports in retaliation against U.S. sanctions. The tariffs cover U.S. products including alcoholic beverages, passenger cars, tobacco, cosmetics, rice and coal.
Copper’s summer slump intensified, with most-actively traded futures of the red metal shedding 2.4% to enter bear market territory, down more than 20% from their June four-year high. This week’s declines have come after data showed Chinese spending on so-called fixed assets such as factory machinery and public works projects cooled to the lowest point in nearly two decades in the first seven months of the year.
Turkey’s banking regulator this week twice moved to limit the amount of Turkish liras banks can swap for foreign currencies with counterparts.
The Turkish lira rebounded for a second straight day, rising 4.7% against the dollar. Turkey’s recent economic crisis has led more broadly to fears of contagion in other emerging markets in part because a strengthening dollar makes paying or refinancing dollar-denominated debt more expensive. Turkey has more foreign-currency debt as a share of gross domestic product than many of its peers.
The yield on the benchmark 10-year U.S. Treasury note fell to 2.861% from 2.893%. Yields fall as bond prices rise.
Some analysts say they don’t see recent weakness in commodities and emerging markets spreading, noting that the declines are tied to specific issues in countries like Turkey.
Analysts were also weighing economic data showing Americans boosted their spending in July, a robust start for consumer spending in the third quarter amid a strong labor market and consumer confidence.
Among individual stocks, Macy’s dropped 7.6% after the department store reported a slight drop in net sales in the latest quarter as it tried to strengthen its bricks-and-mortar business with store remodels and off-price locations.
Cisco Systems is scheduled to report earnings after the market closes Wednesday, while retail giant Walmart is on deck for Thursday.
Elsewhere, declines in mining stocks led the Stoxx Europe 600 down 1.1%.
In Asia, tech stocks dropped as shares in Tencent fell to their lowest level in nearly a year. The decline came after Chinese regulators earlier this week pulled the license for a recently launched Tencent videogame. After the market closed, the internet giant reported weaker-than-expected quarterly profits and sales.
The Shanghai Composite Index fell 2.1% and Hong Kong’s Hang Seng dropped 1.5%. Japan’s Nikkei was 0.7% lower.