US Retail Sales: Early signs suggesting bigger headwinds for spending in August – Wells Fargo
|Data released on Tuesday showed US retail sales dropped by 1.1% in July, more than the 0.2% slide expected. Analysts at Wells Fargo explain that the decline was led lower by another sharp pullback in auto sales where supply (not demand) is the problem. They argue the the height of the spending growth has likely past with early signs suggesting bigger headwinds for spending in August.
Key Quotes:
“Despite a worse-than-expected headline decline of 1.1%, the shift to service spending is still underway, and for a time it makes sense to take this bellwether of goods spending with a grain of salt. Note that retail sales excluding autos fell in two of the three months in the second quarter and overall real Personal Consumption Expenditures (PCE) grew at the second fastest pace in more than a half century.”
“Despite declining in July, the level of retail sales still remains exceptionally high and is 17.2% ahead of its pre-pandemic January 2020 level.”
“Coming off the second biggest increase in quarterly consumer spending since the 1950s, the combination of a resurgence in COVID and higher inflation have eroded consumer sentiment somewhat. That is not to say that these factors alone are to blame for holding up retail sales.”
“Our dashboard of high-frequency consumer data correctly signaled a surge in the April-June quarter and was the basis for our outlier call that second quarter PCE growth would be one for the record books. As the July and August data trickle in, there is less green, more yellow and some lights flashing amber warning signs. The most obvious headwind of course is new daily COVID cases, which are rising faster in August than they have since late last year.”
“In short, early signs suggest bigger headwinds for spending in August, but we still forecast real PCE to advance a solid 7.3% in the third quarter, led by growth in services spending.”
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