skip navigation

By the Numbers

Featuring brief segments of economic analysis from our senior economist Michael Bazdarich, PhD.

The economic analysis we previously featured in By the Numbers is now available on the Western Asset Blog. This page will no longer be updated.

July Retail Sales Sputter After Previous Gains

Retail sales growth stalled in July following three months of stronger gains. Headline sales were essentially unchanged in July, with a 0.2% upward revision to June’s level. The “control” measure we track, excluding cars, gas, and building materials, but including restaurants, was down 0.1% in July, with a 0.1% upward revision to June. As you can see in the accompanying chart, the small July declines were only a slight offset of the strong gains seen in 2Q16, and the six-month growth rate in control sales still shows a nice 5.2% annualized gain through July.

The components of sales largely continued the trends of previous months, with strong gains in online retailers and continued softness in sales at standard “brick and mortar” sectors such as apparel and department stores. A wrinkle in this month’s numbers was that sales at both book/sporting-goods and grocery stores declined a bit in July, following better gains over April–June. All in all, again, July sales failed to sustain the strong pace of the preceding months, but the July softness was not decisive.

The problem for the Fed and for the markets is that consumers have been the only game in town for the economy for the last year. GDP growth outside the consumer has been negative for the past year, and even the strong consumer spending gains of the first half were able to achieve average total GDP growth of only 1.0%. So, for Fed rate hikes to resume and for the stock market to power yet higher, it would seem that strong consumption growth would have to continue. That wasn’t the case in July, but as Fed Chair Janet Yellen has said before, one month does not make a trend.

Our own expectation is that spending growth will likely moderate further in coming months. Within the GDP revisions announced last month were substantial downward revisions to personal income growth across 1H16. Slower income growth and faster spending meant a big drop in personal savings then. With 1H16 spending gains concentrated in a couple sectors and with savings rates at relatively low levels by long-term standards, we would not be surprised to see the consumer retrench a bit in 2H16, most probably not enough to threaten recession, but enough to give the Fed further pause.

Retail Sales Trends
Retail Sales Trends
Source: Census Bureau. As of 31 Jul 16

Michael Bazdarich

Product Specialist/Economist

Mike brings more than 43 years of experience to his position. "By the Numbers" will address economic data releases that are pertinent to a broad range of investors.

Prior to joining the Firm in 2005, Mike ran his own consulting firm, MB Economics. He earned his PhD in Economics at the University of Chicago.

Sign up to receive email updates as new reports are released.

© Western Asset Management Company, LLC 2020. This publication is the property of Western Asset and is intended for the sole use of its clients, consultants, and other intended recipients. It should not be forwarded to any other person. Contents herein should be treated as confidential and proprietary information. This material may not be reproduced or used in any form or medium without express written permission.
Past results are not indicative of future investment results. This publication is for informational purposes only and reflects the current opinions of Western Asset. Information contained herein is believed to be accurate, but cannot be guaranteed. Opinions represented are not intended as an offer or solicitation with respect to the purchase or sale of any security and are subject to change without notice. Statements in this material should not be considered investment advice. Employees and/or clients of Western Asset may have a position in the securities mentioned. This publication has been prepared without taking into account your objectives, financial situation or needs. Before acting on this information, you should consider its appropriateness having regard to your objectives, financial situation or needs. It is your responsibility to be aware of and observe the applicable laws and regulations of your country of residence.
Western Asset Management Company Distribuidora de Títulos e Valores Mobiliários Limitada is authorised and regulated by Comissão de Valores Mobiliários and Banco Central do Brasil. Western Asset Management Company Pty Ltd ABN 41 117 767 923 is the holder of the Australian Financial Services Licence 303160. Western Asset Management Company Pte. Ltd. Co. Reg. No. 200007692R is a holder of a Capital Markets Services Licence for fund management and regulated by the Monetary Authority of Singapore. Western Asset Management Company Ltd is a registered Financial Instruments Business Operator and regulated by the Financial Services Agency of Japan. Western Asset Management Company Limited is authorised and regulated by the Financial Conduct Authority (“FCA”). This communication is intended for distribution to Professional Clients only if deemed to be a financial promotion in the UK and EEA countries as defined by the FCA or MiFID II rules.