Retail spending in the US jumped 0.6% in July, delivering an encouraging rebound from the previous month’s flat performance. The monthly gain could be noise, of course, but the sight of the year-over-year trend reviving as well suggests that consumer spending may be stabilizing, albeit at a lower level of growth compared with the peaks in recent history.
Headline retail sales rose 2.4% for the year through last month, marking the second-highest annual gain in the last six months. No one will confuse 2%-plus growth as strong, but the fact that the trend strengthened a bit implies that consumption isn’t in imminent danger of stumbling.
The trend looks considerably brighter, in fact, when we strip out gasoline sales. Retail spending ex-gasoline advanced 4.5% through July, a pace that suggests that consumers remain willing to open their wallets at a healthy if diminished rate. Although the 4.5% ex-gasoline year-over-year increase is at the lower end of the annual range during the past year-and-a-half, the gain leaves little room for arguing that the appetite for consumption is drying up.
Today’s upbeat spending report is all the more encouraging when we consider this morning’s constructive news on jobless claims, a key leading indicator for nonfarm payrolls and the economy overall. New filings for unemployment benefits ticked up to a seasonally adjusted 274,000 for the week through August 8, but that’s still close to last month’s dip to a four-decade low of 255,000. More importantly, claims continue to fall on a year-over-year basis, dropping 11% last week vs. a year ago. This rate of improvement has decelerated from the spring, but it still marks solid progress. In sum, jobless claims continue to trend lower, which suggests that the labor market will expand in the months ahead.
Overall, today’s numbers on retail sales and jobless claims point to a moderately positive outlook for the economy. The pace of economic activity has decelerated vs. the trend in late-2014. Yet this morning’s numbers suggest that the lesser rate of growth isn’t likely to deteriorate further.
The bottom line: the latest figures offer another round of encouraging clues for expecting a positive trend for the July macro profile once a full set of data is published in the weeks to come.