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The economy continues to improve as the long hot summer rolls on, with the latest metric showing that the critical retail sector again showed more life in the latest month, rising by 0.4% in June. That modest gain, which followed May's downwardly revised increase of 0.5% (initially estimated at 0.6%), though was notably below expectations calling for a strong uptick of 0.8%. Meantime, such sales were still up by 5.7% from a year earlier, a reasonably good performance, by most accounts.

All told, the latest gain made it three straight months of higher sales, and four increases in five months, for this sector that takes in so much of the economy and is so pivotal for the aggregate health of the domestic economy.

Holding back the gain was a dip in sales of building materials, which seems a bit odd given the continuing strength in the housing sector. In all, such sales fell rather sharply, declining by 2.2%--the biggest such pullback in a year. Such sales had improved nicely in May, rising by an estimated 1.2%. On the other hand, results were underpinned solidly by strength in auto demand, with motor vehicles and parts up by 1.8% last month following a 1.4% gain in May. Also gaining strongly last month were sales of furniture and volume at clothing and accessories stores. Internet sales also jumped vigorously, rising by 2.1%, after a subdued 0.4% increase in May.

All told, however, if we strip out such notoriously volatile components as automobiles and gasoline, to get the so-called core rate of retail sales, we find just a very tepid increase of 0.1%, or half the improvement recorded in May.

The economic picture, meantime, remains somewhat mixed. True, housing, auto demand, and employment are all pressing forward more aggressively at this time. On the other hand, we are still seeing sluggishness in manufacturing and international trade. Such an uneven tone is likely to be hotly debated by the Federal Reserve in the months to come as the lead bank goes back and forth about its plans to likely start slowing the pace of bond buying by yearend. This report, then, was a mild disappointment, but it was not enough of one, we surmise, to alter the Fed's thinking.   

At the time of this article's writing, the author did not have positions in any of the companies mentioned.