Data on the economy has not made for very uplifting reading in recent times. Job growth keeps getting revised downward, inflation appears to be uncomfortably sticky and GDP growth is currently running at about half the rate it was last year.
If we dig into the GDP data, we can see that Q2 was artificially inflated by a slowdown in imports. Personal consumption expenditures, which have been a key bright spot in recent times, also showed some weakness. PCE growth has been running below the rate of GDP, growing at just 1.6% in the second quarter after an even weaker 0.5% in Q1.
Despite all this, core retail sales (which exclude the gas, auto, food and building supplies sectors) have been the silver lining on the economy, growing faster than overall consumer spending. According to data from the CNBC/NRF Retail Monitor, year-to-date, core retail sales are up over 5% through August as consumers continue to show willingness to spend on essential goods.
On a sector basis, seven out of the eight core retail sectors have been either flat or grew year-to-date versus 2024. Five of those eight have seen growth of over 5% versus last year, illustrating their strength despite weak consumer sentiment.
Looking forward to the ever-important holiday season, there is reason to be positive. While many economists consider holiday spending to be discretionary, consumers have treated it as a very essential category. We expect that consumers will continue to make savings on nonessential categories — particularly in the services sector — in order to allow them to spend on essential goods categories.
NRF will be releasing its holiday forecast the first week of November. Check out the CNBC/NRF Retail Monitor for more retail sales data.
