US retail sales disappointed in June as the increase was only half the expectations. Indeed, the headline sales rose by 0.4% M/M instead of the 0.8% M/M expected. It followed increases by 0.5% M/M and 0.2% M/M in the previous two months, the revisions to the previous months were insignificant. In Q2, retail sales rose at a 3.3% pace, down from 4.2% in Q2. The disappointments were registered in sales of building materials (-2.2%) and sales at restaurants (-1.2% M/M) and at gasoline stations (0.7% M/M). The latter was less affected by price rises than expected. Some of the negative surprises may have been due to weather conditions, but overall we don’t hide our frustration about the results. Car sales, up 1.8% M/M and 11.4% Y/Y, were behind the headline increase. Excluding car sales, retail sales were effectively flat. The control group, which is the source series that is used in GDP calculations was up a marginal 0.1% M/M, following two 0.2% M/M increases in previous months. In Q2, this measure rose at a 2.6% pace, slowing from 3.4% pace in Q1. This suggest that Q2 PCE will be softer than Q1 PCE and thus also Q2 GDP might print quite weak. A lot of GDP evidence is still not available, making an educated guess about Q2 GDP number difficult at this stage. However, the report raises uncertainty about the expected timing of the FOMC decision to start tapering asset purchases. Markets (and we) expected such a decision at the September meeting. If GDP would be very weak, the FOMC may delay such a decision towards the December meeting.
Contrary to the retail sales, the July NY Fed Empire State manufacturing survey brought a mildly positive surprise. Manufacturing had a difficult time recently and lagged the improvement in other sectors of the economy. The July NY report, if confirmed by other regional and national surveys, suggests that conditions are improving in this key cyclical sector. Indeed, the headline index rose to 9.5 in July from 7.84, defying expectations for a drop to 5. The better headline figure was fully confirmed by the details. New orders rose to 3.8 from -6.7, shipments jumped to 9 from -11.8, while also unfilled orders, delivery times, inventories and the labour market sub-indices all progressed.