Retail Sales in U.S. Unexpectedly Fall

bloomberg-Sales at U.S. retailers unexpectedly dropped in June, curbing optimism about the strength of the rebound in consumer spending during the second quarter.
Purchases decreased 0.3 percent after a 1 percent advance in May that was smaller than previously reported, Commerce Department figures showed Tuesday in Washington. The median forecast of 82 economists surveyed by Bloomberg called for a 0.3 percent gain. Eight of 13 major retail categories showed declines in demand.
An early Memorial Day holiday that may have boosted sales in May at the expense of last month, and a longer school year caused by the harsh winter probably contributed to the more subdued sales performance for the quarter. Stronger gains in incomes will probably be needed to give consumer spending, which accounts for almost 70 percent of the economy, a bigger lift heading into the second half of the year.
“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,” said Stephen Stanley, chief economist at Stamford, Connecticut-based Amherst Pierpont Securities LLC, who projected June retail sales would be unchanged from the prior month. “It puts a little cold water on the idea that the consumer was gathering momentum.”

Estimates in the Bloomberg survey ranged from a decline of 0.2 percent to a 0.8 percent gain. May’s reading was revised down from an initially reported 1.2 percent increase.
Import Prices
Another report Tuesday showed the cost of goods bought abroad dropped in June, restrained by automobiles. The import-price index declined 0.1 percent last month after advancing 1.2 percent in May, according to Labor Department figures.
Excluding fuels, prices fell 0.2 percent last month. The cost of foreign cars decreased 2 percent over the past year, the biggest 12-month drop in data going back to 1981.
Stock-index futures held earlier losses after the reports. The contract on the Standard & Poor’s 500 Index maturing in September declined 0.2 percent to 2,090.7 at 9:03 a.m. in New York following the biggest three-day rally of 2015.
The Commerce Department’s report on sales showed auto dealers, restaurants, furniture and clothing stores were among the retailers that showed declines last month.
While the drop in autos in June was in line with industry data released earlier this month, the industry remains a bright spot.
Auto Sales
Cars and light trucks sold at a 17.1 million annualized rate in June, down from a 17.7 million pace in May, figures from Ward’s Automotive Group showed. It capped the strongest quarter since 2005. Auto sales so far in 2015 have averaged a 16.8 million rate, beating last year’s 16.4 million that was the strongest in eight years.

“We feel really good about the current environment,” Katharine Kenny, vice president of investor relations at Richmond, Virginia-based used-vehicle retailer CarMax Inc., said at a June 24 conference. “Consumers are, obviously, feeling good about buying a car, and that’s probably partially driven by the decrease and the continued low price of gas.”
Retail sales excluding autos fell 0.1 percent after a 0.8 percent increase in May, Tuesday’s report showed. They were projected to rise 0.5 percent, according to the Bloomberg survey median.
Core Sales
Core sales, the figures that are used to calculate gross domestic product and which exclude such categories as autos, gasoline stations and building materials, declined 0.1 percent last month after increasing 0.7 percent in May. The median estimate in the Bloomberg survey called for a 0.3 percent gain.
The payback in June partly reflects difficulty in adjusting the data for the early Memorial Day holiday, Ted Wieseman, an economist at Morgan Stanley in New York, wrote in a note before the report. “So it probably makes sense to consider modest growth in May/June combined and look to see whether there is renewed upside in July and then moving into back-to-school shopping.” Memorial Day fell on May 25 this year, the earliest it’s been since 2009.
Economists at Morgan Stanley projected core purchases would fall 0.2 percent, the only ones in the survey to forecast a decline.
Averaging May and June, retail sales climbed 0.15 percent excluding autos and gasoline. That matched the average gain over the first four months of the year, suggesting there is little momentum in spending.
School Year
Additionally, some demand may have been delayed because the school year in parts of the country extended more into June than usual to make up for days missed during inclement weather this winter, Ian Shepherdson, chief economist at Pantheon Macroeconomics Ltd. in Newcastle, U.K., said in a research note.

Consumers have been pocketing the savings from lower fuel costs. The average cost of a gallon of regular gasoline was $2.77 on July 12, according to AAA, the biggest U.S. auto group. While that’s up from an almost six-year low of $2.03 in January, it’s still far short of last year’s high of $3.70.
The job market has been a strong point. Filings for unemployment benefits have held below 300,000, a level that economists say is consistent with a healthy labor market, for the past 18 weeks. The unemployment rate dropped in June to 5.3 percent, the lowest since April 2008.
Job Market
Employers have added to payrolls at a steady pace in 2015 even as the economy slumped in the first quarter. Hiring gains have averaged 208,330 a month this year after a 259,670 average in 2014 that was the best since 1999.
Further progress on wage growth probably will be needed to propel consumer spending in the second half of the year.
While wages for private sector employees in the first quarter were running at their fastest pace since 2008, according to the employment cost index, other measures are less encouraging. Average hourly earnings climbed 2 percent in the year ended June, matching the average for the six-year expansion, other Labor Department figures show.
Tuesday’s report probably means that economists will lower second-quarter consumption and growth forecasts. The household spending that makes up almost 70 percent of the economy grew at a 2.9 percent annualized rate from April through June following a 2.1 percent advance in the first three months of the year, according to the median projection of economists surveyed by Bloomberg earlier this month. Purchases will rise at a 3.1 percent annualized pace in the third quarter and 3 percent rate in the final three months of 2015, according to the survey.

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