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By Scott McIntyre
Co-Head of Investment Management
HilltopSecurities Asset Management
U.S. retail sales rebounded sharply in August as American consumers prepared for the new school year and generally continued to defy less optimistic forecasts with surprisingly resilient spending. Today’s strong economic data should further validate what is expected to be the first interest rate increase by the Fed in two years.
Headline sales jumped +1.2% last month, well above the +0.8% median forecast. At the same time, disappointing July sales were revised slightly upward from -0.6% to -0.5%.
Gas station sales rose +3.1%, adding 0.25 percent to the headline. Back-to-school purchases were evident in several categories, most notably sales of clothing and general merchandise, both logging +0.7% gains. With much of that school shopping occurring online, internet sales bounced from a -1.7% decline in July to a gain of +2.6% in August, contributing almost half a point to the overall increase.
One of the bigger surprises in the report was how broad spending was last month as 12 of 13 categories rose. Particular strength was apparent in sales of motor vehicle and parts dealers, which gained +0.6%, as well as a +1.2% increase in restaurant sales, the only service sector contributor. “Control group sales,” which exclude gasoline, autos, food services and building materials, rose +1.4% following a -0.4% drop in July. This sub-category is especially important as control group sales feed directly into the GDP calculation.
The retail sales report measures mostly goods and is not adjusted for inflation but is otherwise a reliable measure of consumer spending. Since the personal consumption component of GDP contributes roughly 70% of U.S. economic growth, today’s release implies that the economy is on more solid footing than previously thought. Strong control group sales in August suggest Q3 GDP, already tracking well above +4.0%, per the Atlanta Fed’s GDPNow measure, could be even higher.
From the Fed’s perspective, not only is inflation getting warmer, but economic growth has improved. Although it’s far from clear that a 25 basis point increase would have much, if any effect on price pressures, Fed officials have little choice but to begin tapping the brakes. The futures market is currently indicating a 94% probability that Fed officials will announce a quarter point hike in the overnight target this afternoon.
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.