June retail sales data tops expectations
KPMG Senior Economist Ken Kim says the stronger-than expected results point to strong GDP growth for the second quarter, which will be reported on July 29.
Retail sales increased by a solid six tenths of one percent in June over May, beating market expectations for a small decline. The retail sales data continues to paint a picture in which those categories associated with going out continue to do well. Such as sales at restaurants and bars, apparel store sales, and health and beauty care store sales all were higher in June as consumers re-engaged in social activities. We also saw another drop in motor vehicle sales, and this is due to limited supply owing to the semiconductor chip shortage, but we see this as more of a supply issue rather than a demand issue. So, what does this all mean for the economy going forward. With the June data in hand, we project second quarter GDP growth to show a solid eight and a half percent increase on a seasonally adjusted annualized rate basis when the data is reported later this month and this will be a sharp improvement from the 6.4 percent we recorded for the first quarter. As part of the American rescue plan, the child tax credit was rolled out this week and qualifying families will receive up to three hundred dollars per child. According to the tax policy center, over ninety percent of U.S. families will benefit from the child tax credit. This will substantially enlarge the consumer wallet and support back-to-school spending and increase Q3 GDP growth.
June 2021 sales data tops expectations
Retail sales rose by a solid 0.6% in June from May, beating the market expectations for a small decline of -0.3%.
The June data continues to tell a story, those categories associated with going out and socializing performed strongly. Sales at restaurants and bars, apparel and health and personal care were all higher as consumers reengage in face-to-face social activities.
Meanwhile, those categories associated with the WFH environment, furniture sales and building material store sales, chalked up declines as more people transition back to the office and away from home.
We also saw a second consecutive drop in motor vehicle sales due to limited supply associated with the semiconductor chip shortage. We see this decline as more of a supply constraint rather than a demand issue.
So what does all this mean for the economy?
With the June data in hand, 2nd quarter GDP growth figures will be reported later this month and we project GDP to show an increase of 8.5% on an SAAR basis versus 6.4% in Q1, underpinned by strong consumer spending.
Starting this week, the child tax credit was rolled out as part of the American Rescue plan, in which qualifying families can receive up to $300 per child. This will impact over 90% of US families, according to the Tax Policy Center. This credit substantially enlarges the consumer wallet and should boost back to school spending and add to GDP growth in Q3.