Spending on retail goods and services increased 0.6% in August, matching several consensus forecasts and strengthening the case for thinking that the US economy remains on a path for moderate growth. With the exception of gasoline sales and general merchandise stores, all the major categories posted higher sales last month. Overall, the August profile is a solid report that reflects a healthy pace of consumption. As an added boost for confidence: July’s initially reported flat performance was revised up to a 0.3% gain for the headline data.
Although the monthly figures look encouraging, or at least better, this time, it’s best to focus on the year-over-year comparisons for a more reliable measure of the trend for business cycle analysis. On that note, today’s release still looks good. In fact, the 5.0% annual increase for the headline data is the strongest since July 2013. When we strip out gasoline sales, the trend is even stronger: retail ex-gasoline sales rose 5.7% for the year through August 2014.
The usual suspects from the perennially bearish camp are desperately trying to spin today’s report as a sign of trouble for retail spending by cherry picking a few monthly changes. But the chart above begs to differ in a convincing degree by cutting through the noise and minimizing subjectivity. August clearly reflects an acceleration in retail spending via the 12-month change. It’s open for debate if this a prelude to ongoing strength with consumer demand, but the rearview mirror at the moment speaks loudly and clearly on behalf of the bullish viewpoint.
Unsurprisingly, some analysts are quick to argue that the latest figures bode well for the future. “With further jobs gains, rises in income growth and a loosening in credit conditions in the pipeline, consumption growth should strengthen in the fourth quarter and into next year too,” predicts Paul Dales at Capital Economics.
Gus Faucher, an economist at PNC Financial Services Group, agrees. “The consumer is in decent shape right now,” he tells Bloomberg. “We are looking at solid economic growth in the third quarter.”
That’s a speculative view, of course, as any look into the future inevitably is. But there’s a bit less risk to looking ahead in the wake of today’s retail data. All the more so when you consider that the broad trend across a range of indicators continues to look encouraging, as last month’s profile of the US economy shows. Given what we know today, there’s a good case for anticipating another solid update on the macro trend later this month at CapitalSpectator.com. In fact, that’s what a markets-based view of the business cycle suggested via this week’s review.
In short, the trend is still our friend for expecting the recovery to roll on.