U.S. retail sales sharply underperformed
U.S. retail sales sharply underperformed with a 0.2% August sales drop and a 0.2% ex-auto rise after big and broad-based downward revisions. Analysts lowered our Q3 GDP estimate sharply to 2.6% from 3.0%, and analysts now expect a smaller Q2 GDP growth boost to 3.1% (was 3.2%) from 3.0%. Harvey likely explains a big 1.6% August drop for auto and parts sales and a price-led 2.5% surge in gasoline service station sales, though building material sales fell 0.5%. For the Q2 GDP revision, analysts expect a $4 B downward revision in goods consumption and a $1 B downward bump in service consumption, alongside previously expected boosts of $4 B for factory inventories and $3 B for construction, but a $1 B downward bump for net exports. Our 2.6% Q3 GDP estimate assumes a 1.4% (was 1.7%) growth rate for real consumption, following a trimming in Q2 real consumption growth to 3.1% from 3.3%. Analysts assume a 0.1% August PCE rise in nominal terms with a 0.3% "real" drop, alongside a 0.4% PCE chain price gain that tracks CPI. The business inventory report later this morning will reveal a 0.2% July sales rise after a 0.2% (was 0.3%) June gain.