US: Less momentum in the consumer sector heading into Q3 - RBS

Research Team at RBS, notes that the UK retail sales were weaker than expected in August, and there were downward revisions to June and July which suggest less momentum in the consumer sector heading into Q3.

Key Quotes

“Thus, it now appears that after rising at a 4.4% annualized pace in Q2 (which is likely to be trimmed), real PCE may advance at a pace closer to 2 1/2% annualized in Q3 (versus the gain of more than 3% that we had expected coming into today). The downward revision to consumer spending suggests overall Q3 real GDP growth will be less robust, even assuming a healthy boost from renewed inventory stockpiling.

We now look for real GDP to advance by 3% annualized in Q3 (down from 3.5% ahead of this report). Excluding inventories, real final sales may rise at only a modest 2.1% clip in Q3, similar to Q2 (2.2%). This would mark a sharp slowing in underlying demand. Indeed, over the four quarters ended Q3, our forecast would imply an average increase in real final sales of just 1.8%, almost half the average growth rate (3.0%) registered in the four quarters ended 2015 Q3. All of this underscores our concern that the US economy is losing momentum and strengthens our confidence in calling for no Fed rate hikes this year.

The details of the report were uninspiring. In August, retail sales showed weakness in most categories (autos, building materials, furniture, nonstore retailers, gasoline). The only notable bright spot was a 0.9% jump in spending at restaurants (a key discretionary spending category), following a flat reading in July. But even this category has decelerated (on a year/year basis) over the last 12 months.”