Retail sales were flat in July (against expectations of a 0.1% increase), but after adjusting for sharply lower prices of some goods, particularly gasoline, real retail sales actually rose 0.6%, the first volume gain in three months, point out analysts at Wells Fargo. They expect the staying power of the consumer to last into August before a sharp spending retrenchment takes hold this autumn.

Key Quotes: 

“Amid constant headlines about the highest inflation in 40 years, there is an overlooked and counterintuitive fact that puts the July retail sales report into context: goods prices were actually down 0.5% in July, according to the already-released CPI report. Today, we learned that July retail sales were flat for the month, but the fact that goods prices were down means people actually got a little more for their money in July. By our accounting, real retail sales were actually up 0.6%.”

“We forecast real personal consumption expenditures to rise at a 2.0% annualized pace in the third quarter before contracting 0.5% in the fourth. This retail sales report does not change that expectation. But with notable crosscurrents beneath the surface, the trajectory for spending may be a bit bumpier in the second half of the year than we presently expect.”

“Supply chains are thawing, which may finally give way to some normalization in the auto sector specifically. Consumers are transitioning away from goods purchases to services, but this is happening at a very gradual pace. The staying power of consumers has been quite robust, but it's showing signs of running out. How these factors evolve from here will determine the trajectory for spending, and thereby the overall economy.”