July retail sales were much stronger than most forecasters envisioned. Core retail (i.e., excluding gas and auto) only slowed by -20 basis points to +3.4% growth year-over-year, with upside strength coming from restaurants, grocery, mass, and warehouse clubs (i.e., food & beverage consumption). Restaurant sales only slowed -60 basis points to +3.4% growth. Grocery accelerated +80 basis points to +2.8% growth. General merchandise, mass, and club slowed -70 basis points to +3.5% growth. And general merchandise, excluding mass and club, slowed -100 basis points to 3.6%. Home improvement was also far better-than-feared at +0.4%. (As Home Deport reported comp-sales down -5% for July, we expect negative revisions to the July report, when it’s updated next month.) The error in our forecast (+2.3%) stems from the deceleration in traffic reflected a pullback by less-affluent households (we've discussed the past several weeks) and that sales would be far stronger than the traffic trend. July also included 4th of July celebrations, which we noted were festive this year and could have led to upside in basket size for the holiday. Walmart also noted a very strong 4th of July holiday, followed by a couple of softer weeks. Lastly, given the upside in both in food-at-home and away-from-home, we suspect that all the promotional activity in both channels of consumption are stimulating demand/transactions (as we've covered for both restaurants and grocery in recent weeks). Moreover, we will see more of that in the months to come.
This week, the PPI and CPI reports from the Bureau of Labor Statistics for July show a large break in prices by manufacturers selling to grocers (also shown in the chart below). Manufacturers are cutting price to drive volume growth; in the months ahead, that is likely to also show up for consumers as well. All told, consumer spending was solid for July, but underneath there is moderation, especially by less-affluent households. These dynamics were also apparent in Walmart’s results, which we wrote about above. Walmart CEO Doug McMillon said on its Q2 2024 earnings call, “I'm hoping that what we see from our branded suppliers is investment in price, and we're seeing that from some of them and not others. We have less upward pressure, but there are some that are still talking about cost increases, and we're fighting back on that aggressively because we think prices need to come down.”
