July Retail Sales Jump, But Is August Setting Up for a Stumble?


July retail sales jumped 0.5% over the previous month, giving investors and consumers some badly needed encouraging news on Friday. After all, it's been a dismal August, with the markets going into convulsions and consumer confidence falling to its lowest level in three decades.

So, naturally, investors and consumers may be asking themselves whether July's encouraging performance can continue on its roll through the anguish of August. One economist thinks so.

"I don't think we'll see a 0.5% increase, but I expect to see a modest increase over July," says Sal Guatieri, senior economist with BMO Capital Markets. "I think one of the things that will help this month are there are more cars on dealership lots, so that should help spur sales."

During July, seasonally adjusted automobile sales climbed 0.5% over the previous month. Not bad, but it doesn't compare with the strong drivers for July. Gas stations, for example, climbed an impressive 1.6%, and electronics and appliance stores weren't far behind, with an increase of 1.4%, according to the U.S. Department of Commerce July report.

The July results were better than Wall Street expected, noted Morgan Stanley (MS) fixed-income economists David Greenlaw and Ted Wieseman in a research note on Friday.

"The key retail control series was better than anticipated in July and there was a significant upward revision to June," Greenlaw and Wieseman pointed out in their report. The Commerce Department revised its June retail-sales figures to 0.3% from its previous 0.1%.

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Looking forward to August retail sales, Guatieri says the improvement in the number of jobless claims during the first week in August may help bolster consumers' confidence to spend at retail stores. He noted that there is a tight relationship between employment figures and consumer spending, since, with credit being less available to tap into, more people these days have to rely on their paychecks.

Consumer-confidence figures, surprisingly, don't have an immediate effect on retail spending on a month-to-month basis, Guatieri says. But he noted that if the consumer-confidence figures continually edge down, then that will begin to show up in retail-sales results.

The stock market's gyrations in August can have a tempering effect on retail spending, but although consumers may pull back a little as their portfolios contract, Guatieri says the markets' recent stability over the past several days may help to keep retail spending moving along.

Motley Fool contributor Dawn Kawamoto has no position in any companies mentioned.