Retail sales slumped in June, falling 0.3% vs. the previous month, the US Census Bureau reports. The decline was well below Econoday.com’s consensus forecast for a 0.3% rise. The disappointing report is a reminder that the economic rebound is having a tough time gaining traction after the first-quarter GDP decline.
Nonetheless, a weak number on retail spending should be viewed in context with the stronger trend in the labor market. As long as private nonfarm payrolls are growing above the 200,000 mark, as they were in June, there’s enough forward macro momentum to push the jobless rate lower. That’s a reason to think that the latest monthly slide in retail spending is a temporary setback rather an early sign of trouble.
Keep in mind too that retail spending will likely track changes in disposable personal income, which continues to rise at a considerably faster rate: roughly 3.5% to 3.8% in nominal annual terms in recent months. As long as employment growth remains upbeat, it’s reasonable to assume that income growth will rise in the 3.5%-to-4.0% range for the near term.
In short, the stronger pace for income implies that the recent deceleration in headline retail sales to under 2% on a year-over-year basis may be due to pick up in the months ahead.
Nonetheless, the bears have some fresh meat to chew on today. In addition, there’s reason to wonder about the on-again-off-again prospects for a September rate hike. Indeed, it was only last Friday that Fed Chair Janet Yellen advised that “recent encouraging data about retail sales and light motor vehicle purchases in the beginning of the second quarter could be an indication that the pace of consumer spending is picking up.” But that perspective suddenly looks like ancient history.
“The weakness is pretty broad-based, but it does look like categories that you would consider to be seasonal in nature looked to be very weak,” Stephen Stanley, chief economist at Amherst Pierpont Securities, tells Bloomberg. “It puts a little cold water on the idea that the consumer was gathering momentum.”
Maybe so, but with comparatively robust data for payrolls and income, it’s not inconceivable that the next round of spending figures will tell a different story.