Highlights
Retail sales in July were unexpectedly down and sharply disappointing. Overall retail sales slipped 0.1 percent in July, following a revised 0.8 percent boost the month before. The July decline came in well below the consensus forecast for a 0.8 percent advance. Excluding motor vehicles, retail sales dropped 0.6 percent, following a revised 0.5 percent rise in June. The market had projected a 0.1 percent uptick for the latest month. Weakness was led by gasoline sales which declined 2.1 percent in July, following a 6.3 percent jump the prior month. Excluding motor vehicles and gasoline, retail sales fell 0.4 percent, following a 0.1 percent dip the prior month.

Weakness was widespread in the components but there is some speculation that a shift in tax free days for back to school cut into July sales and will boost August numbers. Some also see the cash for clunkers program raising autos but taking away from other sales. This likely is true even if not based on dollars taken away but based simply on shopping time lost at other stores. Also, the auto sales numbers were not as strong as indicated by unit sales data and could be price related. Nonetheless, the July data are disappointing.

Outside of gasoline and motor vehicles, sales were generally negative. Declines were notable for building materials & garden equipment, down 2.1 percent, and sporting goods, hobby, book & music stores, down 1.9 percent. Gains were seen in health & personal care stores, up 0.7 percent; clothing, up 0.6 percent; and in food services & drinking places, up 0.4 percent.

Overall retail sales on a year-ago basis in July were down 8.3 percent, slipping further from down 8.9 percent in June. Excluding motor vehicles, the year-on-year rate fell to down 8.5 percent in July from down 7.8 percent the previous month.

The July decline in retail sales will lower economists' forecasts for third quarter GDP and will likely lead some to hedge their claim that the recession is over. A key factor in deciding when the recession ends is business sales-which includes retail sales. But today's numbers are complex when taking into account how auto sales are estimated (small sample of dealers) and that lower prices impacted at least two key components (autos and gasoline). Personal spending in the personal income report will address these issues and should get heightened attention later this month. While the July dip in sales was disappointing, it likely will not be as bad in the personal income report-especially in inflation-adjusted terms.

Nonetheless, equities remain optimistic-with favorable GDP numbers from Europe providing a boost.

Market Consensus Before Announcement
Retail sales posted a 0.6 percent gain in June after rebounding 0.5 percent in May. Excluding motor vehicles, retail sales gained 0.3 percent, following a 0.4 percent boost in May. The increase in overall sales was led by a 5.0 percent surge in gasoline station sales. Excluding motor vehicles and gasoline, retail sales slipped 0.2 percent after easing 0.1 percent in May. Looking ahead, motor vehicles sales jumped in July on the "cash for clunkers" program. But, oil prices declined for the month (even though August oil prices have jumped, they were down in July on average). The spike in autos will probably top the dip in gasoline prices. But after autos and gasoline are excluded, recent chain store sales suggest that sales will be weak.

2009 Release Schedule

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