Strong retail sales in June

Disinflation,lower interest rates, withdrawals from FGTS accounts and the pickup in job creation explain the result.

Core retail sales climbed 1.2% mom/sa in June, topping our estimate and the median of market expectations (0.4%).

Broad retail sales (including vehicles and construction material) soared 2.5% during the month, also beating the median of market estimates (1.8%) and our call (1.3%). The strong result was widespread, with gains at the margin in eight out of ten components.

The recent performance is a consequence of lower inflation (which boosts households’ real income),falling interest rates and withdrawals from inactive accounts held under employment protection program FGTS. The pickup in job creation is also behind the recovery.

Going forward, we expect retail sales will continue to show an upward trend in the coming months. However, coincident indicators are consistent with a preliminary forecast of a 0.4% slide in core retail sales in July.

Strong monthly reading beats expectations 

Core retail sales advanced 1.2% mom/sa in June, above the median of market estimates and our forecast (both at 0.4%). Compared to June 2016, core sales expanded 3.0%, marking a third consecutive gain after 24 months in negative territory.

Broad retail sales rose 2.5% mom/sa, also topping the median of market estimates (1.8%) and our call (1.3%). Compared to June 2016, broad retail sales climbed 4.3%.

The June reading sustains a positive quarterly change (see chart).

Breakdown shows broad-based growth

Eight out of ten broad retail components advanced during the month. The exceptions were supermarkets (-0.4%) and office material and equipment (-2.6%).

The auto segment stood out positively in broad retail sales, climbing 3.8% in June and extending a 2% gain in the previous month.

Coincident indicators suggest a slight decline in core retail sales in July

Coincident indicators out so far (retail activity indexes, vehicle sales, surveys with consumers and retail entrepreneurs) suggest that core retail sales will fall 0.4% mom/sa in July.

Fuente: ITAU

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