Retail sales increased 0.4% in June, which is below the consensus forecast, but that shortfall is less about a weaker pace of spending vs. overly optimistic expectations among economists for this morning’s number. In any case, don’t pay too much attention to one number, particularly one that has little relevance for assessing the broader macro picture. On the other hand, take note that the year-over-year trend in retail spending inched higher for the third month in a row, offering another clue for thinking that business cycle risk remains low.
As for last month, consumption slowed a bit. The 0.4% gain in June compares with a monthly rise of nearly 0.5% over the past year. The main headwind last month was the sharp slowdown in the motor vehicles and parts category, which posted a relatively sluggish 1.8% advance. Then again, auto consumption surged more than 11% in May and so it’s not entirely surprising that consumers retreated in this corner of big-ticket spending.
Monthly numbers are noisy, in other words, which is a reminder that the year-over-year change offers more insight. By that standard, things are looking up. Retail sales increased 5.7% for the year through June—the most in more than a year.
It may be premature to say that retail sales are headed for more than modest growth, but it’s certainly overbaked to argue that consumers are unable or unwilling to spend. Indeed, a 5.7% annual rate of increase for this series falls comfortably into the category of “robust.”
Yes, there are still many reasons to err on the side of caution for projecting the economy’s path for the near term. But if retail spending means anything (and it does), it’s fair to say that modest growth remains a reasonable assumption.