Retail Sales Climb 0.2 Percent in July, Markets Fade Lower

Andrew Klips  |

Retail sales in the United States rose in July, marking the fourth straight month of advances and signaling that the nation’s economy continues to try to expand, while adding fuel to the case of the U.S. Federal Reserve to begin tapering its extraordinary stimulus efforts.

The Commerce Department reported on Tuesday that headline retail sales rose 0.2 percent to $424.5 billion in July from June. Meanwhile, June’s figure was upwardly revised from 0.4 percent gains to 0.6 percent gains, compared to May. So-called “core” retail sales, which exclude the volatile categories of gas, autos and building supplies, rose by 0.5 percent, representing the biggest month-over-month rise since December. Core retail sales are closely watched as a component of consumer spending, which accounts for about 70 percent of gross domestic product.

Economists were expecting a 0.3-percent increase to headline retail sales and a 0.4-percent increase in core retail sales.

Compared to July 2012, retail sales were up 5.4 percent.

Sales of motor vehicles and parts chilled in July to decline by 1 percent, following a 2.9-percent rise in June from May. Sales at auto dealers were off by 1.1 percent. Still though, auto sales have advanced 13.3 percent compared to last July.

Sales at gas stations climbed 0.9 percent in July, following a 0.6-percent rise in June.  Year-over-year, sales were up 4.9 percent.  If the gas category were stripped out, retail sales would have been up 0.1 percent in July.

Nine of the 13 major categories posted gains in July from the month prior.  Sales at clothing stores matched the advance at gas stations to lead the gainers. Food and beverage store sales as well as miscellaneous store retailers grew 0.8 percent for the month. 

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The broad advances show that Americans have not suffered as much as first thought from tax increases and federal budget cuts as part of the so-called “sequester” earlier this year.  Tax hikes took $1,000 per year from the pockets of a person earning $50,000 annually and $4,500 from two-income affluent households. A slow improvement in the jobs market is also helping people spend more money, although pay increases have been lackluster.

Laggard categories for the month included the aforementioned auto sector, furniture and home furnishings stores (-1.4 percent), building materials and garden equipment (-0.4 percent) and electronics and appliance stores (-0.1 percent).

The increase in retail sales helps keep the thinking on track that GDP will continue to accelerate throughout the second half of 2013. GDP increased from 1.1-percent growth in the first quarter to 1.7-percent growth in the second quarter.  This latest look at retail sales may also lead to revisions in prior months and, subsequently, GDP.

In June, Fed Chairman Ben Bernanke initiated discussions of the central bank scaling back its policy of buying $85 billion each month in Treasuries and mortgage-backed securities.  Chatter has rolled through the markets ever since with arguments on both sides of the tracks, with some saying the Fed will begin unwinding QE3 in September.  September is getting awfully close, so investors will be monitoring all the data coming this week to try and get a read on a possible Fed move.  It was time for a retrace in the frothy markets and it appears that fears of the Fed actually taking their foot of the stimulus gas pedal is giving traders a reason to lock in some gains.

Wall Street is trading lower on Tuesday, looking to extend losses for the sixth time in seven sessions at the rate it is going. The Dow Jones Industrial Average is down 56 points, the S&P 500 is lower by 4 points and the Nasdaq is off by 11 points in late-morning trading.

[Image via Flickr]

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