On Friday, May retail sales in the control group and industrial production growth both beat estimates and both had positive revisions to their April readings which initially weren’t good. They support the stock market’s June rally and call into question any rate cuts that could be coming in July or September. This is why we follow trends instead of hanging our hat on monthly readings. Economic reports can be revised to show the opposite result of the initial reading.
April & May Retail Sales Growth
The retail sales update was like 2 reports in 1 because there was a major positive revision to April’s numbers and May’s growth in the control group beat estimates. It’s impressive for monthly growth to beat estimates when there’s a big positive revision to the previous month because that makes the monthly comparison tougher. Last month we described how April’s seasonal adjustment was very tough because of the Easter holiday shift, meaning the May reading could end up showing a rebound in growth. The seasonal adjustment didn’t change much with this update as both the non-seasonally adjusted and seasonally adjusted April sales results were revised higher by similar amounts. Therefore, we’ll just focus on the seasonally adjusted data.
It’s almost like a new month was added to the retail sales report as monthly growth in April went from -0.2% to 0.3%. Yearly growth improved from 3.1% to 3.7%. The next 3 data points are all monthly. Retail less autos sales growth was revised higher from 0.1% to 0.5%. Retail less autos and gas sales growth was pushed higher by 0.5% to 0.3%. Finally, the all-important core growth rate was up from 0% to 0.4%.
Keep in mind, both of these reports affect Q2 GDP growth, so they are both very important. Moving on to May’s report, retail sales, retail sales less autos, retail sales less autos and gas, and the control group all had monthly growth of 0.5%. Headline retail sales growth missed estimates for 0.7% and the others beat estimates for 0.4%. Yearly headline growth fell to 3.2%. As you can see in the chart below, control group sales growth was steady at 3.4%.
https://t.co/N1JVm11kv6 pic.twitter.com/M5oi7ZzIvZ
— Logan Mohtashami (@LoganMohtashami) June 14, 2019
These results aren’t near cycle highs, but they signal the slowdown isn’t that bad. This doesn’t necessarily mean there won’t be a recession soon as growth was 3.3% before the last recession. At least it’s likely the economy isn’t in a recession now.
Most of the underlying results in this report were very good. That explains how the chart below shows quarter over quarter retail sales and food services growth ex gas, building materials, and autos was the highest since 2008. To no one’s surprise, online sales growth was strong again as monthly growth was 1.4%. Yearly growth improved from 9.9% to 11.5%. Somewhat surprisingly, general merchandise sales were also strong as monthly growth was 0.7% and yearly growth was 3.3%. Both outperformed overall sales growth.
Core retail sales 3m/.3m hit the highest level since 2008,. pic.twitter.com/JS6fQzKtxv
— Sri Thiruvadanthai (@teasri) June 14, 2019
Restaurant sales growth was 0.7% monthly and 3.7% yearly. That monthly growth reading is great, but yearly growth fell from 5.5% because the yearly comp was very tough. The comp will only get tougher in June and July as yearly growth in those months last year was 6.3% and 9.6%. Growth is still far from where it was in 2017 when it troughed at 1.7% in September of that year. We remember some prognosticators calling for a recession based on that reading.
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