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Robust Retail Sales Nudge Fed Ever Closer to Tapering

by Karl Schamotta | July 16, 2021

Another month of above-trend US consumer spending data has defied market predictions – raising pressure on the Federal Reserve to begin reducing its emergency monetary stimulus efforts. 

Advance retail sales rose 0.6 percent month-over-month in June, beating consensus estimates for a -0.4 percent contraction. Total receipts totalled $621.3 billion, up 18 percent over June 2020.

With motor vehicles, parts, and gas stations excluded, so-called “control group” sales rose 1.1 percent month-over-month – far better than the 0.4 percent gain predicted by economists. 

Spending at restaurants and bars rebounded: Receipts at food and drinking establishments climbed 2.3 percent month-over-month, for a 40.2 percent gain over the same month last year.

Sales of some tangible goods continued to rise: Department stores recorded a 5.9 percent month over month gain, while electronics rose 3.3 percent. Clothing shops posted a 2.6 percent increase as consumers refreshed (sized up) their wardrobes.

While others began to contract: Building materials fell -1.6 percent, sporting goods -1.7 percent, cars -2.0 percent, and furniture posted a sharp -3.6 percent decline.

Contradictions are emerging: The boost provided by government stimulus payments is fading, supply chain issues are triggering price volatility and shortages in a range of consumer goods, and easing coronavirus restrictions are shifting spending into the services sector.

But, on balance, the data supports Fed tapering: After a string of above-trend retail sales reports, it is clear American consumer demand is alive and well. Citizens appear willing and able to spend the excess savings accumulated during the lockdown months, and this is helping to anchor growth expectations upward. The dollar is up slightly as traders raise implied odds on an asset purchase reduction announcement from the Federal Reserve by the end of September.

 

Karl Schamotta – Chief Market Strategist, kschamotta@cambridgefx.com

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