U.S. Retail Sales Increase 0.5% vs 0.4% Expected In June

by Ike Obudulu Posted on July 16th, 2018

Washington, D.C., USA: Advance estimates of U.S. retail and food services sales for June 2018, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $506.8 billion, an increase of 0.5 percent (±0.4 percent) from the previous month, and 6.6 percent (±0.5 percent) above June 2017 – data from the Census Bureau of the U.S. Commerce Department released today show.

A median survey of economists forecast retail sales to rise 0.4% month-on-month in June, compared with an 0.8% increase in May.

Total sales for the April 2018 through June 2018 period were up 5.9 percent (±0.5 percent) from the same period a year ago. The April 2018 to May 2018 percent change was revised from up 0.8 percent (±0.5 percent) to up 1.3 percent (±0.2 percent).

Retail trade sales were up 0.3 percent (±0.5 percent)* from May 2018, and 6.4 percent (±0.5 percent) above last year. Gasoline Stations were up 21.6 percent (±1.6 percent) from June 2017, while Nonstore Retailers were up 10.2 percent (±1.4 percent) from last year.

The continued growth in retail sales was partly due to a jump in sales by motor vehicle and parts dealers, with surged up by 0.9 percent in June after climbing by 0.8 percent in May.

Excluding the jump in auto sales, retail sales still rose by 0.4 percent in June following a 1.4 percent spike in May. The increase in ex-auto sales matched economist estimates.

Sales by health and personal care stores showed a significant increase, shooting up by 2.2 percent in June following a 1.3 percent jump in May.

Notable increases in sales by food service and drinking places, non-store retailers and gas stations also helped to offset steep drops in sales by sporting goods, hobby, music and book stores, clothing and accessories stores and department stores.

Meanwhile, the Commerce Department said closely watched core retail sales, which exclude automobiles, gasoline, building materials and food services, were unchanged in June after climbing by an upwardly revised 0.8 percent in May.

Compared to the same month a year ago, retail sales were up by 6.6 percent in June versus the 6.5 percent year-over-year increase in May.

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 : Empire State Manufacturing Index

New York manufacturing index dips less than expected in july. A report released by the Federal Reserve Bank of New York on Monday showed New York manufacturing activity continued to grow at a fairly brisk pace in July, although the pace of growth slowed from the previous month.

While the New York Fed said its general business conditions index dipped to 22.6 in July from 25.0, a positive reading still indicates growth in regional manufacturing activity. Economists had expected the index to drop to 22.0.

Other U.S Economy News : Business Inventories

U.S. Business inventories growth matches expectations in may. Partly reflecting a notable increase in wholesale inventories, the Commerce Department released a report on Monday showing business inventories in the U.S. rose in line with economist estimates in the month of May.

The Commerce Department said business inventories climbed by 0.4 percent in May after rising by 0.3 percent in April. The increase in inventories matched expectations.

Wholesale inventories led the way higher, advancing by 0.6 percent in May after inching up by 0.1 percent in the previous month.

The report said manufacturing inventories also edged up by 0.2 percent in May following a 0.4 percent increase in April, while retail inventories rose by 0.4 percent for the second consecutive month.

The Commerce Department also said business sales surged up by 1.4 percent in May after climbing by 0.6 percent in April.

The jump was partly due to a substantial increase in wholesale sales, which soared by 2.5 percent in May following a 1.4 percent spike in April.

Retail sales also shot up by 1.1 percent in May after rising by 0.4 percent in April, while manufacturing sales climbed by 0.6 percent after ticking up by 0.1 percent in the previous month.

With sales rising by more than inventories, the total business inventories/sales ratio dipped to 1.34 in May from 1.35 in April.

Market Reaction To Economic Reports

Most of the major sectors are showing only modest moves on the day, although considerable weakness is visible among energy stocks.

The weakness in the energy sector comes amid a steep drop by the price of crude oil, as crude for August delivery is plunging $2.26 to $68.75 a barrel.

Reflecting the weakness in the energy sector, the NYSE Arca Natural Gas Index is down by 2.6 percent, the Philadelphia Oil Service Index is down by 2.4 percent and the NYSE Arca Oil Index is down by 1.8 percent.

Tobacco and transportation stocks also moved to the downside, while Bank of America (BAC) is helping to lead the banking sector higher after reporting better than expected second quarter results.

In overseas trading, stock markets across the Asia-Pacific region moved mostly lower during trading on Monday, with the Japanese markets closed for a holiday. China’s Shanghai Composite Index slid by 0.6 percent, while Australia’s S&P/ASX 200 Index fell by 0.4 percent.

Meanwhile, the major European markets have turned mixed on the day. While the German DAX Index has risen by 0.2 percent, the French CAC 40 Index is down by 0.3 percent and the U.K.’s FTSE 100 Index is down by 1 percent.

In the bond market, treasuries have moved notably lower over the course of the morning. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is up by 4.1 basis points at 2.873 percent.

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