Retail sales reveals 'remarkable recovery' past three months

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Friday’s batch of economic indicators all came in near expectations, as U.S. economic data continues to “surprise on the upside” through July.

Retail sales moved up 1.2% in July, after a revised 8.4% jump in June, the Commerce Department said on Friday.

Economists polled by IFR Markets predicted sales would increase 1.8%.

“The retail sales report for July reveals a remarkable rebound in retail sales has occurred over the last three months as the U.S. economy reopened for business and government transfer payments bolster consumer confidence enough for consumers to return to the stores with a vengeance,” Scott Anderson, chief economist at Bank of the West.

Year-over-year, sales have rose 2.7%.

Excluding autos, sales rose 1.9% in July, slightly higher than the 1.6% economists projected.

Sales are up 0.8% from a year ago and jumping 5.8% up year-over-year.

Scott Anderson, chief economist at Bank of the West.

“Nominal retail sales are now above the levels seen before the pandemic started and above year ago levels, making a full recovery and then some,” Anderson said. “This sets up a robust rebound in annualized Q3 real consumer spending growth in the next GDP report.”

Nonfarm productivity preliminarily rose 7.3% in the second quarter of 2020, compared to a final reading in the first quarter of a 0.9% increase. Year-over-year productivity gained 2.2%, according to data released by the U.S. Bureau of Labor Statistics on Friday.

Unit labor costs rose 12.2% preliminarily in Q2 2020, after a 9.8% climb in the first quarter.

Sales rose 5.1% in Q1 2020, up from the originally reported 4.8% rise, following a 2.2% gain in the fourth quarter of last year.

Industrial production
Industrial production climbed 3.0% in July after a 5.7% gain in June, but remains 8.4% below February levels, according to the Fed.

Economists were on par with expectations of a 3.0% increase.

Capacity utilization gained to 70.6% in July from 68.5 in June.

Economists predicted a 70.2% level.

Business inventories
Business inventories decreased 1.1% in June, after a revised 2.3% drop in May, Commerce said Friday.

Economists projected inventories to drop 1.2% in the month.

U. of Michigan sentiment
The University of Michigan’s preliminary consumer sentiment index for August inched up to 72.8 from the final reading of 72.5 in July and June’s final reading of 78.1.

Economists anticipated a 72.0 read.

“Consumer sentiment remained largely unchanged in early August from the July reading or the April low as there has been two significant changes since April: consumers have become more pessimistic about the five-year economic outlook and more optimistic about buying conditions,” said Richard Curtin, chief economist, surveys of consumers. “Lower interest rates by the Fed prompted more favorable buying, especially for homes, and the DC policy gridlock was responsible for the weaker outlook. The overall confidence in economic policies fell to the lowest level since Trump first entered office.

The current conditions index dipped to 82.5 from 82.8 the prior month. Economists estimated an 81.0 reading.

Expectations crawled higher to 66.5 from 65.9.

“The policy gridlock has acted to increase uncertainty and heightened the need for precautionary funds to offset lapses in economic relief programs and to hedge against fears about the persistence and spread of the coronavirus as the school year gets underway,” Curtin said. “Bad economic times are anticipated to persist not only during the year ahead, but the majority of consumers expect no return to a period of uninterrupted growth over the next five years. Consumers anticipate declines in the national unemployment rate to significantly slow and expect a rising rate of inflation during the year ahead. While a positive growth rate in consumption is anticipated in the 2nd half of 2020, it will hardly herald the end of the coronavirus recession.”

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Economic indicators