admin August 15, 2020
  • Sales in July gain 1.2%, less than the 1.9% consensus estimate.
  • Control group consumption component adds 1.4% beating 0.8% forecast.
  • Sales in June revised higher in all three categories.
  • Dollar fades slightly, equites flat, Treasury yields higher on the week.  

American consumers pulled back on spending after two torrid months as deferred auto sales subsided but overall consumption reached a record overtaking the lockdown plunge in March and April.

Retail sales rose 1.2% in July, missing the 1.9% forecast from the Reuters survey of economists.  Purchases excluding automobiles rose 1.9%, beating the 1.3% estimate and the ‘control group, the consumption entry in the Bureau of Economic Analysis’ GDP calculation was 1.4% nearly double the 0.8% prediction.

Retail sales


Worker productivity, a key component of wage increases, rose 7.3% in July, its highest pace in 11 years and far ahead of its 1.5% forecast.

The third straight month of sales increases brought the total to 27.8% easily surpassing the 22.9% decline in March and April.  The overall volume of sales climbed to a new record resuming the strong growth trajectory that has held since the end of the financial crisis recession in June 2009.

Sales in June were revised up to 8.4% in July from 7.5%, sales ex autos added 1% to 8.3% and the control group rose to 6% from 5.6%.

Retail sales in the shutdowns

Under normal conditions July’s 1.2% retail expansion would be considered an excellent sign for an economy that gets about 70% of its growth from consumer spending. 

When the 22.9% plunge in receipts in March and April is subtracted from the 27.8% increase in the next three months, it leaves an average spending gain of 1.63% in May, June and July.  This bodes well for hiring in August after July’s 1.763 million increase in non-farm payrolls that was 10% over forecast but just one-third of June’s 4.8 million addition.

Unemployment fell to 10.2% in July from 11.1% in June but it is a long way from the near record 3.5% in the months before the pandemic and 28.3 million people were still collecting some form of public unemployment benefits in mid-July.

GDP and US growth

The latest Q3 GDP estimate from the Atlanta Fed’s GDPNow model was jumped to 26.5% annualized after the retail release.   The US economy contracted at a 32.9% annual rate in the second quarter the deepest fall on record as Covid lockdown shuttered most activity.

Another positive sign for the US economy is that initial claims for jobless benefits fell to 0.963 million in the first week of August the lowest of the pandemic era.

Initial jobless claims


 It was the 10% rise in claims, from 1.307 million to 1.435 million in the second and third weeks of July as Covid exposure cases rose in several Western and Southern states that prompted the sell-off in the dollar on the assumption that the US recovery might be seriously undermined.  That concern seems to have been allayed with the sales figures confirming the improving outlook from payrolls and claims.

One caveat to the economic situation is the inability of Congress to agree on an extension of benefits for those thrown out of work by the pandemic shutdowns.  In lieu of the Congressional appropriation President Trump has signed four executive orders intended to keep the benefits flowing past the expiration of the current programs.

Market response

The dollar was slightly lower after Friday’s market action with the euro finishing at 1.1838 after starting at 1.181 and the USD/JPY closing at 106.60 after opening at 106.93. Equities were mixed with the Dow gaining 34.30 points to 27,931.02 and the S&P 500 losing 0.58 points to 3,372.85. Oil was off 0.08 cents to $42.16. Treasury yields were unchanged on the day with the 10-year at 0.713% and the 2-year at 0.147% but both were sharply higher the week from last Friday’s close at  0.562% and 0.127% respectively.

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