US: Retail sales jump in August, not necessarily the start of another surge in spending – Wells Fargo

The US dollar is rising sharply on Thursday, supported by US economic data, including the retail sales report. Analysts at Wells Fargo point out that despite wilting consumer confidence amid renewed COVID worries, retail sales shot up by rising 0.7% in August. They explain the report may nudge their Q3 PCE growth forecast slightly higher, but they do not see this as the start of another surge in goods spending.

Key Quotes:

“Retail sales picked up sharply in August rising 0.7% despite a consensus expectation for an equally large decline. The gain here came despite a sharp 3.6% drop at motor vehicle and parts dealers amid ongoing shortages and supply chain issues. That resulted in an eye-popping gain of 1.8% for retail sales ex-autos.”

“To some extent what might be happening here is some catch-up sales for categories where inventory was picked clean earlier in this cycle. Furniture stores sales shot up 3.7% while building materials and garden stores saw sales increased 0.9%.”

“Control group sales do however feed directly into the calculation of goods spending by the BEA in the GDP accounts, and this category soared 2.5% in August. This did come after a downward revision to -1.9% in July from -1.0% previously, which takes away some of the cheer associated with August sales. Still it suggests some modest upside to goods spending in the third quarter.”

“We recently downgraded our Q3 real personal spending forecast on the rise in Delta cases here in the U.S. and accompanying slump in confidence, and currently look for spending to rise at a 0.9% annualized rate. Most of the downgrade came on the services side, and today's report does not materially change our expectations for growth.”