US: Strength in consumer spending is a relief - Wells Fargo
|Data released today showed that retails sales rose 0.4% in June. Analysts at Wells Fargo point out Control group sales rose an even stronger 0.7%, suggesting real personal consumption rose solidly during the second quarter.
Key Quotes:
“Retail sales rose 0.4% in June, while sales ex-autos rose 0.4%. Both were revised down for the prior month 0.1 percentage point. Control group sales, which are a good proxy for personal consumption expenditures within the GDP report, rose 0.7%, the strongest gain since March. This suggests substantial upside to our forecast of 3.4% annualized growth in Q2 PCE, as well as our headline GDP forecast of 1.8%.”
“The strength in consumer spending is a relief following last year’s year-end stock market turbulence, which cut into consumer confidence and triggered an apparent 2.0% plunge in December retail sales.”
“Headline sales rose 0.4% all three months of the second quarter, and core retail sales rose 0.5%, 0.6% and 0.7% in April, May and June, respectively. The second quarter’s stability is encouraging, as smaller tax refunds were expected to hold down spending. While tax refunds did decline, solid job and income growth appear to have more than made up any shortfall.
“The only downside to June’s better retail sales data is they raise questions about whether the Fed will follow change its intentions to cut the federal funds rate later this month. We doubt it. The Fed’s decision to cut rates is based more on where they see the economy headed than where it has been.”
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