July retail sales are solid

United States retail sales data for the month of July, which was released today by the United States Department of Commerce and the National Retail Federation (NRF), was largely positive.

U.S. retail sales contribute around 14 percent, or $2.6 trillion to U.S. GDP. That is a major number and clearly cannot be overlooked, especially when looking at how closely connected retail and consumer activity is tied to the freight transportation and logistics sectors on so many fronts, including trucking, intermodal, parcel, ocean, air, e-commerce, and warehousing and distribution.

Commerce reported a 0.6% increase from June to July at $478.9 billion and a 4.2% annual increase. For the period from May through July, total retail sales were up 3.9% annually.

Non-store retailers, which includes a heavy focus on e-commerce, reported an 11.2% annual increase in July, which was followed by building materials and garden equipment and supplies dealers, which saw sales up 8.3% annually.

The NRF reported that June retail sales, excluding automobiles, gas stations, and restaurants, were up 0.6% from June to July, tripling June’s revised 0.2% growth rate, while July sales headed up 3.5% annually. Non-store retail sales were up 1.3% from June to July and rose 11.4% on an unadjusted basis annually. General merchandise store saw a 0.1% seasonally-adjusted sequential increase and a 1.4% unadjusted annual increase.

“Consumer spending remains solid as retail sales saw healthy improvements in July and revised June numbers were also positive,” NRF Chief Economist Jack Kleinhenz said in a blog posting. “We have yet to see the full effect of back-to-school spending, but pickup in spending was evident both online and in general merchandise, which includes bricks-and-mortar department stores. Rising home values are encouraging home-improvement spending and home-related retail purchases. Soft or declining prices for retail goods continue to hold down the dollar amount of sales reported even though unit volume was up.”

This data follows recently announced 2017 retail sales projections from the NRF, calling for an annual gain in the 3.7-to-4.2 percent range, with online and other non-store/online sales (which NRF includes in its over all number) to head up between 8 and 12 percent.

While not a direct comparison, NRF’s 2017 projection would top the 3.3 percent annual gain in retail sales from 2015 to 2016, based on data issued by the United States Department of Commerce.

As previously reported, the NRF offered up various data points supporting its thesis for retail sales growth in 2017, including:

the economy is expected to gain an average of approximately 160,000 jobs a month, which it said is down slightly from 2016 but consistent with labor market growth;
unemployment is expected to drop to 4.6 percent by the end of the year; and
economic growth is likely to be in the range of 1.9 to 2.4 percent
And it offered up a caveat in that the “forecast is a baseline and does not take into account new fiscal measures pending in Washington.”

That is important to consider when considering, as NRF President Matthew Shay pointed out, that 2016 finished with strong momentum as jobs and income saw growth, coupled with debt staying on the lower side. But the optimism is quelled to a degree, he noted, in that while consumers appear to have the resources to spend more than in the past, there is likely to be some hesitancy until there is more clarity in regards to policy changes regarding taxes, trade, and other issues.

With consumer spending accounting for around two-thirds of all economic activity, that commensurate growth, or projected growth, is contingent on consumers being able to change behavior, or, in other words, consistently spend more. 

“Consumers came out swinging in July after taking a breather in May and June, wrote IHS Markit Executive Director Chris Christopher in a research note. “Retail sales started the third quarter on a very strong footing. Retail gains were broad-based, highlighted by an unexpected turnaround at department stores.

The traditional “back-to-school” shopping season is in a state of flux since the introduction of Amazon Prime Day (mid-July), now having completed its third year. This seems to be pulling August brick-and-mortar sales into July online sales. In addition, shoppers are learning that holding out a little bit longer can help them enjoy deep holiday price discounting that has been starting in early November.”

He added that the future for retail sales looks bright as well, citing how that consumers remain an engine of U.S. economic growth and that IHS expects consumer spending to be the primary driving force of GDP growth in the back half of 2017, supported by rising employment, real disposable incomes, and household wealth. And he also noted that income tax cuts in 2018 will likely fuel an acceleration in spending growth and a hike in the personal saving rate.