US August Retail Sales Unchanged in the Month
Location: Toronto
Author:
RBC Financial Group Economics Department
Date: Thursday, September 15, 2011
Retail spending in August remained unchanged in the month and compared to expectations of a 0.2% gain. The increase represents a slowing from a 0.3% rise in July that was revised down from an initially estimated increase of 0.5%. The picture was little changed eliminating the usually volatile auto component, with the ex-auto measure up only a marginally stronger 0.1%. This represented a slowing from a 0.3% rise in July that was revised down from the 0.5% gain reported previously.
A slowing in nominal retail spending was widely expected from earlier indications of a drop in auto sales and more moderate gains in gasoline prices. This was reflected in this morning’s report with auto sales down 0.3% after a 0.3% rise in July. Similarly, growth in gasoline service station receipts rose a more moderate 0.3% relative to the 0.9% gain in July; however, some slowing was also evident in the retail sales component that goes into the GDP add-up, which also excludes building materials, with so called ‘control’ retail sales up only 0.1% following 0.4% gains the previous two months. This slowing reflected the decline in clothing sales deepening to -0.7% from -0.3% in July and sales at general merchandise stores moderating to 0.1% from 0.4% during the same period. Some offset was provided by sales at sporting goods stores rising a strong 2.4% in August, which more than reversed a 1.1% drop in July.
The fact that the ‘control’ retail sales measure still managed to increase in August is a source of some encouragement because it occurred despite strong headwinds in the month. These include concern about fiscal imbalances in both Europe and the US, and attendant financial market turmoil that has been weighing on confidence. The hit to business confidence may have been a factor stalling job growth in August. As well, Hurricane Irene likely disrupted weekend shopping for much of the Northeast populous late in the month. As well, the gain is consistent with strengthening growth in consumer spending in the third quarter of 2011 to 2% relative to the negligible 0.4% increase reported in the second quarter. This expected improvement provides support to the view that the weak consumer spending last quarter was in part the result of temporary factors (e.g., limited availability of certain car lines due to supply-chain problems and a spike in gasoline prices limiting income for spending outside of energy purchases) that are starting to reverse.
Despite these positive aspects to the report, the expected gain in third-quarter 2011 consumer spending is still representative of modest growth and thus vulnerable to recent headwinds intensifying. As a result, we expect the Fed to keep its policy highly accommodative with additional measures to inject further liquidity into the system, such as the reinvestment of MBS prepayments, likely to be introduced at next week’s FOMC meeting. As well, the Fed is likely to reconfirm that exceptionally low levels for fed funds will be maintained “at least through mid-2013.” However, it is likely the case that the central bank sees the need for accommodative monetary policy to be paired with additional fiscal policy stimulus, such as President Obama's recently announced jobs plan, to buttress the modest pace of growth further. As Bernanke commented recently, “although the issue of fiscal sustainability must urgently be addressed, fiscal policy makers should not, as a consequence, disregard the fragility of the current economic recovery.”
In a separate report out this morning, producer prices in August indicated minimal price pressure in the month. Overall prices came in as expected showing no change in the month. This was helped by energy prices dropping 1.0% in the month, which helped offset a 1.1% rise in food prices. Core prices, which eliminate the effect of both the food and energy prices, rose only 0.1% and compared to an expected increase of 0.2% in the month.
Information contained in this report has been prepared by the Economics Department of RBC Financial Group based on information obtained from sources considered to be reliable. While every effort has been made to ensure accuracy and completeness, RBC Financial Group makes no such representation or warranty, express or implied. This report is for information purposes only and does not constitute an offer to sell or a solicitation to buy securities.
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