Here's Why Economists Are Cranking Up Their GDP Forecasts After The Disappointing Retail Sales Report
But those who have looked beyond the headline numbers aren't worried.
First, the prior month's growth numbers were revised up significantly. Sales actually jumped 0.5% in May versus an earlier reading of 0.3%. Excluding autos and gas, sales climbed by 0.3%, which compares to an earlier print of 0.0%.
Second, the data's so-called control group, which the BEA uses to calculate GDP, climbed 0.6% against expectations for 0.5%. The BEA defines this as all sales excluding receipts from auto dealers, building materials retailers, gasoline stations, office supply stores, mobile homes, and tobacco stores.
As a result, economists are revising their GDP estimates upward. Here's Barclays:
...The [control group] gain in June was driven by discretionary categories such as general merchandise (1.1%), clothing (0.8%), sporting goods (0.6%), and non-store retailers (0.9%). The gain in core retail sales was revised higher in April (0.5% from 0.2%) and May (0.2% from 0.0%). The strength in core retail sales pushed our tracking estimate for Q2 14 real GDP growth to 3.0% from 2.7%.
Capital Economics has pretty much the exact same take:
Stripping out gasoline, motor vehicles and building materials, sales actually increased by a pretty healthy 0.5% m/m in June. That suggests second-quarter real consumption was between 1.5% and 2.0% annualised, depending on what assumptions the BEA makes about health care consumption in the first estimate of second-quarter GDP. While consumption itself wasn't particularly strong, our calculations indicate that overall GDP growth was around 3.0%.
And here's a chart from Bloomberg's Michael McDonough showing month-over-month growth in the control group (in gold), and it's three-month moving average (in black). The moving average hasn't been that impressive but has been consistently growing since 2010:
