Falling gas prices and expectations that the war would end soon lifted overall spending at retail stores and restaurants in June.
Topline retail sales rose 0.2% on a nominal dollar basis even as spending at the pump fell a sharp 5.3%. Excluding gasoline, autos and building materials, the control group—which is a better proxy for the underlying spending trend—rose 0.5%.
That was no doubt an encouraging sign that American consumers continue to weather the impact of the Iran War. And when we take into account that inflation was negative in June, real retail sales should be even more impressive.
The main drivers in June were auto and online sales. Falling gasoline prices likely boosted demand for cars, while Amazon Prime Day in June certainly helped lift online sales.
However, those were the only two major categories that showed real strength in June. Our concern is that both could have been affected by seasonal factors that might not last long.
Oil prices are up again in July following a new escalation in the Middle East. While we can say that the worst might be behind us, the road back to normal will likely remain very bumpy for now.
The new data won’t change the Fed’s decision much this month to keep rates on hold. The report was solid but not strong enough to justify a rate hike. Our forecast for second-quarter GDP may edge up a little, but it still won’t point to broad-based spending strength after the first two months of the quarter, which were quite disappointing.
