July 16, 2021 | 09:07
U.S. Retail Sales: Hot Start to Summer
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After two soggy months following March's rebates-led binge, U.S. retail sales surprised to the upside in June, jumping 0.6%. Mind you, the gain was flattered by price increases, including gas station receipts pumped by higher fuel costs. As well, the prior month's decline was deepened to -1.7%. Still, the increase marks an impressive start to the summer with the economy more fully reopening as of mid-month. The advance was despite a further decline in auto sales, as chip shortages have both curbed model choice and jacked up prices. Sales excluding autos and gas rose a brisk 1.1%, just more than retracing the prior month's decline. The control measure of retail sales that feeds into personal spending also rose 1.1%, though not fully offsetting May's downwardly-revised 1.4% dive. Given higher prices, this likely points to only a modest advance in real consumer spending in June. But that should be enough to keep our call for a 10.2% annualized gain in Q2 intact, as well as 9.5% for GDP. However, we'll need to see stronger sales ahead to keep our near 8% calls for Q3 on track. The expanded child tax credit will provide a decent boost to July sales, though expiring emergency UI programs in many states will temper the glow.
The rotation toward hard-hit services and away from the big-ticket goods that made staying at home more comfortable during the pandemic continued in June. Restaurant and bar sales spiked 2.3%, further pushing above pre-pandemic levels. Clothing sales rose even faster with more people eying a new wardrobe as they head back to the office. Meantime, sales of home furnishings, building materials/garden supplies, and sporting goods/hobbies all fell sharply in the month.
The bottom line is that American shoppers have renewed spending at a solid rate even as the sugar high from rebate payments wears off. They are buying more services than goods, but there's plenty of pent-up demand here, especially for travel and in-person entertainment. However, it's also clear that supply shortages, notably for workers, is holding back demand by curbing production and lifting prices. So far, consumers, many backed by extra savings, don't seem too fussed about paying more, especially for deferred services.