United States: Retail Sales Surged, But Manufacturing Output Slowed

Total retail sales were rather soft during the spring, partly due to persistently weak motor vehicle and gasoline station sales, but firmed up with July’s 1.0% rise. This is the strongest monthly growth in total retail sales since January 2023. These gains were supported by a surge in motor vehicle sales, which jumped 3.6% after falling 3.4% in June. June’s slide was caused by a cyberattack that affected car dealerships, and sales recovered when the situation resolved. Meanwhile, gasoline stations recorded a slight increase in July (+0.1%) following two months of major declines brought on by lower gas prices. Excluding cars and gasoline, sales went up 0.4% in July—fairly decent results, even though they’re below June’s 0.8% gain. It’s better than the 0.2% average recorded over the first six months of 2024. Furniture, electronics and grocery sales also fared well, though sales were down for other retail categories, including clothing stores and sporting goods, hobby, musical instrument and book stores. However, the CPI data released yesterday shows that prices were also down for these categories. Real sales are therefore much more positive. In fact, once adjusted for price changes, sales for all retailer categories (excluding “Miscellaneous stores”) actually went up. This bodes well for July’s real consumption and third quarter real GDP results.

While retail sales came in better than expected, industrial production was more disappointing. The 0.6% drop in total production is the worst since January. A large part of this drop came from a 3.7% decrease in energy production for July. Hurricane Beryl played a role in this decline, in addition to weighing on mining and manufacturing output. The storm is estimated to have brought total industrial production down by 0.3%. The index for motor vehicles and parts fell by 7.8%. Excluding this sector, manufacturing output increased 0.3%, with gains of 1.0% in high-technology industries and 1.4% in machinery, both of which are a good sign for investment and future production.

July’s retail sales results show that American spending is holding strong and that fears of a looming recession are perhaps unfounded. The drop in industrial production is less positive, but since it largely comes from temporary factors, the situation isn’t as gloomy as it appears. The results for some components point to a brighter future. All in all, these results shouldn’t keep the Federal Reserve from moving ahead with key rate cuts in September.