US: Retail Sales bodes well for Q2 real PCE – Wells Fargo
|Data released on Friday showed a larger than expected increase in retail sales during June but negative revisions in May’s numbers. The takeaway from the June retail sales report is that while some demand was clearly pulled forward over the past year in categories like sporting goods, building materials and garden supplies, consumers' transition to spending more on services need not come with a sharp decline in goods outlays, explained analysts at Wells Fargo.
Key Quotes:
“Retail sales increased 0.6% in June despite consensus expectations for a second straight monthly decline. There has been a lot of hand-wringing in recent weeks over whether the pivot from spending on things to spending on experiences would cause an air-pocket in goods spending. We have maintained the view that even though services will be the primary driver of consumer spending this year, goods spending can still hold up. Despite the headline gain, today's report is not a complete vindication for our view on this. Some of the categories that drove the post-pandemic spending surge last year were the very ones to post declines this month.”
“Overall today's report bodes well for our above-consensus call for real PCE to rise at an annualized pace of 12.9% in the second quarter, but for that pace to be realized it ultimately comes down to two things: services spending and inflation.”
“Prices may be eating into consumers purchasing power and could weigh on real spending.”
“While we remain cautious on the goods spending outlook, we maintain the notion that pent-up demand for services matched with the more than $2.4 trillion accumulated on household balance sheets over the past 15 months can help cushion the downside.”
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