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Consumers Back in the Saddle

J: In last month's blog on retail and food services sales, we wrote, "We expect to see significant increases in retail sales soon." As the data released by the Census Bureau on August 15 show, it was already happening then! (L: That's kinda cool, if I do say so myself.)

The total for retail and food services sales rose to a record $478.9 billion in July, adjusted for trading days, holidays and seasonality, but not for inflation. This was a leap of 0.6 percent from June, which was itself revised from being down 0.2 percent to increasing by 0.3 percent from May.

July posted the largest month-to-month increase since the 0.9 percent rate in December 2016. As shown in the chart, the 4.2 percent increase over July 2016 was the best year-over-year increase since the 4.5 percent in April 2017.

These data and other strong numbers released for July have kicked up the Atlanta Fed's "GDP Now" forecast to 3.8 percent at a seasonally adjusted annual rate (always SAAR unless we say otherwise) for the third quarter of 2017. If you're not familiar with "GDP Now," you should be if you are interested in getting a good idea of what GDP data will show when they become available. We won't get the third quarter "Advance" estimate for GDP from BEA until October 27. If that growth rate comes in at 3.8 percent, it would be the highest since the 5.2 percent in the third quarter of 2014.

This was a very strong report. Total personal consumption expenditures (PCE) rose by 1.9 percent in the first quarter of 2017 and by 2.8 percent in the second.

L: So why are we talking about PCE here when we were talking about retail and food services sales?

J: Because retail and food services sales enter into PCE, but not directly into GDP. Retail and food services sales make up about 40 percent of PCE.

If this strong start to the third quarter holds up in future revisions, real PCE will be an even bigger contributor to economic growth in this quarter. The chart below shows the healthy rise in retail and food services sales so far in 2017. We'll all be watching the data for August, which will be released by the Census Bureau on September 15.

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