Implications:  Consumers started the second half of the year on a good note, with retail sales rising for the second month in a row.  The 0.5% gain in July slightly lagged the consensus expected +0.6%, but factoring in upward revisions to previous months, retail sales rose a solid 0.9%.  Looking at the big picture, monthly retail sales figures have been whip-sawing since earlier this year as consumers front-loaded purchases to avoid potential tariffs.  Given that the retail sales report largely reflects purchases of goods (which are import-heavy), we expect ongoing trade negotiations to keep volatility high going forward.  Looking at the details of the report, July’s advance was broad-based with nine out of thirteen major sales categories rising.  The largest increase, by far, was in the volatile auto sector, which posted the biggest gain for the category (+1.6%) since March and is now up 4.7% in the past year.  After stripping out autos along with the other typically volatile categories for building materials and gas stations, core retail sales rose 0.3%.  These sales are up 4.9% in the past year – above the 3.9% increase for overall sales.  Keep in mind, however, that a monetary policy tight enough to bring inflation down is also tight enough to bring growth down.  One category we will be watching closely for this is at restaurants & bars – the only glimpse we get at services in the report, which make up the bulk of consumer spending. That category fell 0.4% in July, although still up at 5.5% annual rate so far this year.   While this report appears to differ from some other signs of a slowing economy, we remain cautious given the potential delayed effects of tighter monetary policy.  In other news this morning, import prices increased 0.4% in July while export prices rose 0.1%.  In the past year, import prices are down 0.2% while export prices are up 2.2%.

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