US retail sales impress, but June unimpressive, net, point to less growth in PCE – Nomura

After today’s key US data, analysts at Nomura offered a review of retail sales and updated their GDP tracking update.

Key Quotes:

“Retail sales rose 0.5% m-o-m, in line with our and the market’s expectations in June, with positive revisions to May figures. The gain in June was driven by solid gains in sales at “non-core” stores (i.e., auto and parts dealerships, gasoline stations, building material stores and food services).  

Sales at autos and parts dealerships, which account for the lion’s share of total retail sales, increased solidly at 0.9% m-o-m in June following a 0.8% gain in May. These gains point to healthy consumer demand for autos during Q2 after weakness in Q1. Gasoline stations saw a 1.0% sales increase, boosting total retail sales. Further, sales in the food and beverage service sector increased 1.5% in June after a 2.6% jump in May.

Excluding these components, core retail sales were flat in June with mixed details following upwardly revised 0.8% m-o-m growth in May (previously reported as +0.5%), implying less momentum at end-Q2. Department store sales fell 1.8% and electronics and appliance store sales fell 0.4%. Clothing stores saw a sharp 2.5% m-o-m decline in sales. On the other hand, receipts at health and personal care stores were unusually strong, up 2.2% m-o-m, and non-store retailers sales rose a solid 1.3% (most of which likely came from e-commerce).

The flat reading in core retail sales in June does not change our view that the growth in personal consumption expenditure (PCE) likely picked up robustly in Q2 with a solid contribution to real GDP growth after some softness in Q1. We remain optimistic on the near-term PCE outlook as the continued strength in the labor market will likely remain supportive for PCE growth and month-to-month changes in retail sales can be volatile. However, weaker-than-expected sales in June after stronger gains in previous months point to possible moderation in Q3 after acceleration in Q2.  

GDP tracking update: While upward revisions to May core retail sales suggest more momentum in real PCE growth in mid-quarter, data for June were weaker than our expectation. On net, the incoming data point to modestly less growth in PCE in Q2. After rounding, however, our Q2 real GDP tracking estimate remains unchanged at 4.8% q-oq saar.”