Despite Big Drop in Auto Sales
- Retail sales rose a strong 0.7% in August, against expectations for a large decline.
- Details were even better. Autos were a large drag, but sales increased strongly in most other segments.
- July sales were revised substantially lower.
- The outlook for consumer spending remains very positive, although the Delta variant remains a downside risk.
Retail sales rose 0.7% in August, much better than the consensus expectation for a 0.8% decline. Sales excluding autos were up a very strong 1.8%, while sales excluding autos and gasoline were up 2.0%. Control sales—sales excluding autos, gasoline, food service, and building materials, and which go into nominal consumer spending in GDP—rose a very strong 2.6% in August.
Sales of motor vehicles and parts fell 3.6% in August, as limited inventories deterred buyers. Sales at gasoline stations were up 0.2%. But some other segments saw big gains. Sales at non-store retailers, primarily online sales, jumped 5.3% over the month, while sales at general merchandise stores rose 3.5%. Sales of home furnishings and furniture were up 3.7%, and sales of building materials were up 0.9%. Sales of electronics and appliances dropped 3.1%, perhaps because of limited inventories due to supply-chain problems. Grocery sales rose 2.1% in August while sales at foodservice and drinking establishments were flat; it could be that concern about the Delta variant discouraged dining at restaurants while encouraging at-home meals.
While sales growth in August was very strong, especially after taking out autos, sales in July were revised substantially lower. Retail sales dropped a large 1.8% in July, revised lower from the initially reported 1.1% decline. Some of the drop in July came from autos, but sales excluding autos were still down 1.0% in July after revisions.
The headline number for retail sales was very strong, and the details were even better. Autos were a huge drag for a second straight month as supply problems continue to beleaguer the industry, and there’s no sign that those are letting up with the automakers cutting back on production. But outside of autos the details were very strong, with consumers buying all sorts of goods. The drivers for consumer spending remain very positive: more than $2 trillion in excess savings, solid job and wage growth, extremely low-interest rates, and record household wealth given very high and rising stock prices and home values.
The expanded child tax credit is also providing more disposable income to households. However, consumer spending is likely to take a hit in September with reduced eligibility for unemployment insurance benefits and a cut to benefit levels. The Delta variant may have weighed on restaurant sales, but doesn’t appear to have deterred overall consumer spending, but could be more of a problem in September.
Consumer spending will continue to lead the economic recovery going forward, although growth will shift from goods to services assuming that coronavirus caseloads fall as expected. The exception will be autos, where sales will come back along with production as supply-chain issues are gradually resolved.
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