After three consecutive monthly declines, retail sales rose by 0.8% in July, a much stronger result than the consensus expectation of 0.2%.
The sharp improvement may indicate that in fact weaker sales results in the second quarter were in part a result of unusually warm weather across much of the country earlier in the year. Increasingly, it appears that consumers got out and spent more in the late stages of winter, pulling sales forward and contributing to disappointing second quarter results.
While this breaks a trend of falling sales in the preceding three months, it doesn’t necessarily signal a turning point. Certainly, the multi-month trend still suggests a cautious pace of spending. The year-over-year rate increased fractionally from June; at 4.1%, the pace has been cut in half from a year ago and remains an ominous sign.
It’s a positive development, but expectations should be tempered. As a solitary piece of data, it certainly doesn’t signal an “all clear.” An abundance of challenges remain for consumers. Personal income growth remains suppressed, the jobless rate is persistently high, and personal balance sheets are still strained with debt.
The lingering negative wealth effect of household net worth that was crushed by the collapse of the housing bubble is likely to be with us for some time.
More broadly, economic data indicate that the U.S. is joining the rest of the world in a synchronized economic slowdown. As such, we still believe that the U.S. economy remains in a window of vulnerability.
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