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By Matt Harris, CFA
Senior Portfolio Advisor
HilltopSecurities Asset Management
After this week’s cooler-than-expected CPI and PPI reports, June retail sales delivered another signal that inflation pressures may be easing. Retail and food services sales, released by the U.S. Census Bureau, rose 0.2% in June to just under $769 billion, matching expectations but slowing from May’s upwardly revised 1.0% gain. Sales were up 6.7% from a year earlier.
The headline increase was the weakest monthly gain in six months, but the details paint a better picture. Most of the slowdown was driven by falling gasoline prices, which resulted in a sharp 5.3% decline in gas station sales during the month. Lower fuel costs appear to have freed up household budgets for spending elsewhere, supporting activity across several retail categories.
Underlying demand remains solid. Retail sales excluding gas stations increased 0.7% in June, while sales excluding autos and gas rose 0.4%. Core retail sales, a closely watched measure excluding autos, gasoline, building materials, and food services that feeds directly into GDP calculations, advanced a healthy 0.5% during the month. Meanwhile, the Chicago Fed’s Advance Retail Trade Summary estimated that inflation-adjusted retail sales excluding vehicles increased 1.6%, suggesting consumer spending strengthened as inflation moderated.
Seven of thirteen major retail categories posted gains in June. Motor vehicle and parts dealers rose 1.9%, matching a 1.9% increase among online retailers. The latter likely benefited from early summer promotional activity, including Amazon Prime Day. Food services and drinking places also edged higher, indicating consumers continue to spend on discretionary purchases.
The June report supports the idea that the consumer remains on decent footing heading into the second half of the year. While spending growth has moderated from the stronger pace seen earlier this spring, lower gas prices have provided households with greater purchasing power versus a pullback in demand. The stronger retail sales data also contributed to an upward revision in the Atlanta Fed’s GDPNow estimate for second-quarter growth to 1.7% from 1.3%, suggesting overall economic activity remains resilient. Initial jobless claims fell to 208k this week, the lowest level since May, while the Philadelphia Fed Manufacturing Index surged to 41.4 in July from 10.3 in June, pointing to a surprising acceleration in regional manufacturing activity.
Looking ahead, import and export price data, housing starts, and building permits are scheduled for release tomorrow, followed by the preliminary University of Michigan consumer sentiment survey on Friday. On Fed watch, we have Vice Chair Philip Jefferson speaking tonight, followed next week by Governor Christopher Waller and congressional testimony from Chair Kevin Warsh. Their remarks will come as the Federal Reserve approaches its next policy meeting on July 28-29, where officials will once again assess the outlook for inflation, growth, and interest rates.
About Scott McIntyre, CFA
As HilltopSecurities Asset Management’s Co-Head of Investment Management, Scott McIntyre specializes in investment management services and is responsible for the management, oversight and trade supervision of more than $30 billion in institutional fixed income assets for HilltopSecurities’ public sector municipal clients. Scott also provides investment advice and consulting, reviews local government investment policies, formulates overall investment strategies, evaluates account performance and oversees the day-to-day operations. He is a member of the Chartered Financial Analyst (CFA) Institute and a CFA Charterholder, a two-term advisor to the GFOA Treasury and Investment Management (TIM) committee, a Registered Investment Advisor, and holds FINRA Series 7, 24, 63, and 65 licenses.
About Greg Warner, CTP
As HilltopSecurities Asset Management’s Co-Head of Investment Management, Greg Warner specializes in investment management services and is responsible for the management and oversight of more than $30 billion in institutional fixed income assets for HilltopSecurities’ public sector municipal clients. Greg coordinates all client services and portfolio management duties, including security evaluation and portfolio analysis, trading, investment reporting, board presentations, and monitoring of broker-dealer relationships. He is an advisory committee member to the Texas Association of Counties, a member of the Government Treasurers’ Organization of Texas (GTOT), a Registered Investment Advisor, a Certified Treasury Professional (CTP) and holds FINRA Series 7, 63, and 65 licenses.
About Matt Harris, CFA
As HilltopSecurities Asset Management’s Senior Portfolio Advisor, Matt Harris specializes in investment management services for public sector municipal clients. He developed his experience in the banking industry, supporting balance sheet management, interest rate risk analysis, liquidity planning, and investment strategy implementation. At HilltopSecurities, he works closely with clients to develop and implement customized investment strategies, oversees account documentation and reporting, and assists clients with the public funds depository review process, including competitive RFP evaluations. Harris is a member of the CFA Institute and a CFA Charterholder, a Registered Investment Advisor, and holds FINRA Series 7, 63, and 66 licenses.
The paper/commentary was prepared by HilltopSecurities Asset Management (HSAM). It is intended for informational purposes only and does not constitute legal or investment advice, nor is it an offer or a solicitation of an offer to buy or sell any investment or other specific product. Information provided in this paper was obtained from sources that are believed to be reliable; however, it is not guaranteed to be correct, complete, or current, and is not intended to imply or establish standards of care applicable to any attorney or advisor in any particular circumstances. The statements within constitute the views of HTS and/or HSAM as of the date of the document and may differ from the views of other divisions/departments of Hilltop Securities Inc. and its affiliates. In addition, the views are subject to change without notice. This paper represents historical information only and is not an indication of future performance. Sources available upon request.
HilltopSecurities Asset Management is an SEC-registered investment advisor. Hilltop Securities Inc. is a registered broker-dealer, registered investment adviser and municipal advisor firm that does not provide tax or legal advice. HTS and HSAM are wholly owned subsidiaries of Hilltop Holdings, Inc. (NYSE: HTH) located at 717 N. Harwood St., Suite 3400, Dallas, Texas 75201, (214) 859-1800, 833-4HILLTOP.