U.S. Retail Sales Might Be Aided from Unexpected Source

The sharp rise in auto sales is widely understood to boost the July retail sales. The report will be published tomorrow. Excluding autos, retail sales are expected to eke out a small gain. However, there is another potential source of demand that many are probably overlooking. In late July, the federal minimum wage was increased by 10.7% to $6.55 an hour. Over the past two years, the minimum wage was been increased three times for about 38% in real terms--the largest two year increase in more than 50 years. This will likely show up in the August employment data and help boost hourly earnings. Although the minimum wage hike was implemented the week after the survey was conducted for the July payroll figures, some may have passed on the raise earlier in July. Also the impact may be muted by the fact that some states have higher minimum wages than set by the Federal government. On the margins then, the retail sales report, ex-autos may be slightly than economists are forecasting.