Retail Sales Suggest Strong Q3 Spending Start

Nominal retail sales jumped by 0.97 month-over-month in July and real retail sales grew by 0.81 percent, starting third quarter consumption off on a strong note. Real Retail Sales grew by 3.2 percent annualized in July compared to Q2 2024.

Trusted Insights for What’s Ahead^®

• The July spike in retail sales revealed that consumer spending on goods, restaurants, and bars likely was strong at the start of the third quarter.
• These data may help arrest fears that the US economy has descended into recession, but more data will be needed especially spending on services, which will be posted on August 30.
• Yesterday’s CPI and today’s retail sales data are supportive of the narrative that the Fed probably can start cutting interest rates in September, but likely by 25bp.
• We expect 75bp of cuts before the end of 2024 and for the federal funds rate to fall to just above 3 percent by the end of 2025.

Figure 1. Real Retail Sales suggest a healthy start to 3Q consumer spending

Sources: Census Bureau, Bureau of Labor Statistics, Haver Analytics, and The Conference Board.

Strong Q3 Consumption Start

Nominal retail sales rose by 1 percent month-over-month in July after declining by 0.2 percent in June.

Sales were strong across most categories, especially for motor vehicle and parts dealers (+3.6 percent), furniture (+0.5 percent), electronics and appliances (+1.6 percent), building supplies (+1.0 percent), groceries (+1.0 percent), healthcare (+0.8 percent), and general merchandise (+0.5 percent) stores, which were led by spending at warehouse clubs and superstores. Sales were also positive for nonstore retailers (+0.2 percent), bars and restaurants (+0.3 percent), and gasoline stations (+0.1 percent).

Nominal sales were down for clothing stores (-0.1 percent), sporting goods (-0.7 percent), and department stores (-0.2 percent). Retail control – defined as retail sales and food services excluding auto, building supplies and gasoline stations – rose by 0.3 percent in the month.

Importantly, real retail sales were up by 0.8 percent month-over-month, and a sizable 3.2 percent annualized over Q2. While only one month in the quarter, these data suggest that at the start of Q3, consumers were still content to spend on goods and food and beverage services.