US Retail Sales July 2010

In July 2010, US headline retail sales rose by a more encouraging 0.4%m/m, following two months of decline. This was, however, slightly below market expectations for a rise of 0.5%m/m, and compares with a revised decline of 0.3%m/m in June 2010. US retail sales are still, effectively, struggling to gain any meaningful traction but not necessarily slipping back into recession.

If vehicle sales are excluded, retail sales rose by a more modest 0.2%m/m in July 2010, slightly below expectations for a rise of 0.3%m/m. Excluding vehicle sales and petrol sales (which is appropriate since sales are reported in nominal terms) retail sales were down by 0.1%m/m. This was below expectations for a rise of 0.1%m/m. Given the above data, it is fair to conclude that the main reason for the better headline retail sales data in July 2010 was a 2.3%m/m rise in gasoline sales and a 1.6%m/m increase in motor vehicle sales.

On an annual basis, US retail sales are up 5.5%y/y (in nominal terms), which is still relatively healthy, but well below the peak of 8.7%y/y in April 2010. Importantly, excluding vehicles and gasoline, sales are up are a modest 4.0%y/y, which is well below the average from 2004 to 2007 of 5.5%.

After improving noticeably from February 2010 to April 2010, consumer activity slowed appreciably in the months from May 2010 to July 2010. While the overall trend in retail activity does not necessarily imply a return to recession conditions, our base case view that US consumer activity will struggle to regain the previous peaks is still firmly in place, especially given the still sluggish growth in private sector employment.

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