Loading...

Retail spending rose for the first time in four months during July, with the gain, an impressive 0.8% for the month, swamping the consensus expectation of an increase of 0.2%. That followed a downwardly revised pullback of 0.7% in June. Initially, the June sales decline had been estimated at 0.5%.

In all, the July gain, the first increase since March, was the largest since February. Moreover, if we exclude the auto component, the overall rise was still 0.8% last month, suggesting that there was some aggregate strength evolving that had been largely missing so far this year.

This was a pivotal metric, as consumer spending is an important component of the nation's overall gross domestic product. In fact, such activity normally accounts for some two-thirds of economic output. So, clearly, this was a solid showing and one that should give the economic bulls some rare hope going forward. 

Earlier this year, by comparison, the consumer had given the economy a lift. But by the spring, the reality of high unemployment, faltering home values, and the political wrangling in Washington had dimmed consumer confidence. Lower sentiment readings are anathema to better consumer spending results.

Now, following an improved consumer confidence metric issued during July, the retail component of GDP has perked up. Now, it is not clear whether we have a durable uptrend in place in either confidence or spending, but for an economy that has been largely starved of good news, this latest report was at least mildly reassuring. The auto sector, meantime, which has been relatively strong this year, picked up further last month, also gaining 0.8%, after a rare decline in June.

On the whole, this was a good report and one that suggests that GDP growth, a nominal 1.5% in the April-to-June period, could pick up a notch in the third quarter, to perhaps the 1.7% area. We expect some additional snapback during the fourth quarter with growth possibly pushing back up to the 2% level.    

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