Industrial production and retail sales were both much stronger than expected.

Consensus Expectations
 

What Happened?

Industrial Production rose 0.3 percent in June vs the consensus expectation of 0.0 percent. In addition, the Fed revised May from -0.2 percent to 0.0 percent.

Core retail sales were much hotter than expected, rising 0.6 percent vs the excepted 0.1 percent.

In all cases, GDPNow looks at real numbers, not the nominal numbers posted in the above table. The CPI rose 0.27 percent in June so all of the above numbers are overstated by ~0.3 percentage points.

I carry many charts to more precision than the BLS and census department because it can matter.

In all cases, the GDPNow model does not care about consensus estimates. The model does react to posted data vs its expectations.

I discuss import and export prices in an email exchange with Pat Higgins.

Mish to Pat Higgins

Hi Pat

I know it what the model expects (not silly humans) but I am wondering what the heck the model expected today  (see image above).

The reported numbers seem shockingly good.

It seems like you expected hot retail sales, but what about import-export prices?

We have falling import prices and rising export prices. Is that bad (lower GDP) for some reason?

Did the model expect even better numbers?

Thanks

Mish

Reply From Pat Higgins

Hi Mish

The June import/export price inflation rates makes essentially no impact on the model forecast because there is no released June nominal export/import data to deflate yet.  When that data is released on July 29, the June import/export price data will be factored into the forecast.  GDPNow forecasts price deflated exports/imports directly and the forecast doesn’t change when prices are available but the nominal foreign trade data is not.  The model doesn’t separately forecast the prices and the nominal series and then combine those forecasts into a real forecast.

The revisions to May import/export prices does impact the forecast.  For both exports and imports, when prices are revised down (up), the calculated real value is revised up (down).  May import prices were revised down and May export prices were revised up as you can see from your table.  So the upward revision to forecasted real imports and the downward revision to forecasted real exports were consistent with these movements.

For the retail control group outside of food services – which excludes auto dealer, building supply store, and gasoline station sales – the model was expecting around 0.4 percent growth in June relative to May in real terms (not annualized).  Based on the latest CPI data, the model had prices for the goods sold by this store group increasing a bit less than 0.5 percent from May to June (not annualized). The nominal retail spending data used to estimate the relevant portion of goods consumption increased a hair less than 0.5 percent and a hair more than their prices according to the model’s calculation.   So real sales of the goods increased only very slightly positively from May to June (rounding down to 0.0 percent) according to the model calculations.  Hence the annualized Q2 growth forecast for real goods was revised down from 2.9 to 1.8 percent.

Best regards,

Pat

Retail Sales Rebound 0.6 Percent Led by Motor Vehicles Up 1.2 Percent

Earlier today I posted Retail Sales Rebound 0.6 Percent Led by Motor Vehicles Up 1.2 Percent

Following a decline of 0.9 percent in May, sales rebounded 0.6 percent in June.

But it is real sales that drive GDP. This is why I post real numbers as well, unlike others.

Click on the preceding link for a set of real and nominal charts.

Inflation-Adjusted Retail Sales

• Total: 0.4
• Excluding Motor Vehicles 0.2
• Excluding Motor Vehicles and Gas: 0.3
• Motor Vehicles: 0.9
• Food Service: 0.3
• Gas Stations: -0.3
• Nonstore: 0.1
• Food Stores: 0.3

• Real sales Excluding Motor Vehicles and Gas rose by 0.3 percent (0.27 percent to two decimal places). The Model expected better so GDPNow declined.

  Also note that Within the Benign PPI Report Is a Stew of Tariff-Related Inflation

  The producer price index was unchanged in June, in an interesting way.

   

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