US Retail Sales Surge 0.6% Month Over Month

The latest economic data from the US indicates a robust economy, despite ongoing trade uncertainties. Retail sales for the month showed a significant increase, surpassing most expectations. The actual retail sales month over month was 0.6%, compared to the expected 0.1%. The retail sales control group month over month was 0.5%, exceeding the forecast of 0.3%. Additionally, retail sales excluding automobiles month over month were 0.5%, higher than the anticipated 0.3%.

It is crucial to note that retail sales are a nominal metric, meaning they include inflation. In an environment of persistently high inflation, this becomes increasingly relevant. Despite the nominal improvement, consumers' purchasing power continues to decline in real terms. This scenario highlights the difficulty of triggering a significant recession in a high-inflation regime. A recession could occur on a "real" basis, where nominal GDP continues to rise, but the net effect is a decrease in purchasing power rather than a nominal decrease in spending and incomes across the economy.

The Philly Fed survey, known for its accuracy in recent years, provided further insights. The soft data indicates an economy rebounding from recent uncertainties and adapting to current tariff conditions. Every metric in the survey showed improvement. The Philly Fed CAPEX index rose to 17.10 from the previous 14.50. The employment index increased to 10.3 from -9.8. New orders surged to 18.4 from 2.3, and the prices paid index climbed to 58.80 from 41.40. These figures suggest a strengthening economy, particularly in manufacturing and employment sectors.

Weekly jobless claims data further validated the economy's strength. Initial claims continued their decline, surprising to the downside. Continuing jobless claims also showed signs of stabilization after a recent surge. This contrast between initial and continuing claims is essential for understanding the labor market. The economy is robust enough to avoid significant layoffs but weak enough that those who become unemployed struggle to find new jobs, remaining on continuing claims for longer.

In summary, both hard and soft data indicate a rebounding economy. Retail sales, the Philly Fed survey, and jobless claims all point to an economy adapting to current conditions and showing signs of improvement. Despite ongoing trade uncertainties, the US economy appears to be churning along, with consumers continuing to spend and businesses investing in capital expenditures.