Barclays just revised its GDP estimate a full percentage point, to 4% from 3%, after revising its Q2 GDP tracking estimate up a few points to 3%.
It now sees its 2014 real GDP forecast at 1.6%, up from 1.4%.
“We have revised our Q2 14 US real GDP forecast to 3.0% from 4.0%,” the bank said. “This change moves our forecast in line with our GDP tracking estimate, which stands at 3.0% after the June retail sales and May business inventories reports.”
This morning we learned that U.S. retail sales growth in June came in below expectations, climbing just 0.2% compared with economists forecasts for 0.6% growth. Excluding autos and gas, sales increased by 0.4%, which was a hair below expectations for 0.5% growth.
But those who have looked beyond the headline numbers aren’t worried.
First, the prior month’s growth numbers were revised up significantly. Sales actually jumped 0.5% in May versus an earlier reading of 0.3%. Excluding autos and gas, sales climbed by 0.3%, which compares to an earlier print of 0.0%.
Second, the data’s so-called control group, which the BEA uses to calculate GDP, climbed 0.6% against expectations for 0.5%. The BEA defines this as all sales excluding receipts from auto dealers, building materials retailers, gasoline stations, office supply stores, mobile homes, and tobacco stores.
As a result, economists are revising their GDP estimates upward. Here’s Barclays:
…The [control group] gain in June was driven by discretionary categories such as general merchandise (1.1%), clothing (0.8%), sporting goods (0.6%), and non-store retailers (0.9%). The gain in core retail sales was revised higher in April (0.5% from 0.2%) and May (0.2% from 0.0%). The strength in core retail sales pushed our tracking estimate for Q2 14 real GDP growth to 3.0% from 2.7%.
Capital Economics has pretty much the exact same take:
Stripping out gasoline, motor vehicles and building materials, sales actually increased by a pretty healthy 0.5% m/m in June. That suggests second-quarter real consumption was between 1.5% and 2.0% annualised, depending on what assumptions the BEA makes about health care consumption in the first estimate of second-quarter GDP. While consumption itself wasn’t particularly strong, our calculations indicate that overall GDP growth was around 3.0%.
And here’s a chart from Bloomberg’s Michael McDonough showing month-over-month growth in the control group (in gold), and it’s three-month moving average (in black). The moving average hasn’t been that impressive but has been consistently growing since 2010: