June Retail Sales Report Expected to Show a Decline (Ouch)

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The May retail sales reports, which showed the biggest gain in over a year, was generally greeted by investors as a sign of economic resilience. However, the skeptical sorts, looking at overextended consumers, lousy first quarter GDP stats, not particularly strong (and dubious) job growth reports, argued that if you looked at April and May together (April’s report had been very weak), the picture wasn’t too positive.

It looks like the skeptics are being proven right, as MarketWatch tells us in “Retail sales sputtered in June“:

Investors who’ve been worried about U.S. economic growth being too strong will get a reality check in the coming week from the retail sales figures for June.

Retail sales are projected to fall 0.3% in June in nominal terms, with weaker spending on vehicles, gasoline, building materials and clothing, according to a survey of economists conducted by MarketWatch.

Sales increased at a 16-month high of 1.4% in May, a figure that some economists expect to be revised down.

The June retail sales report on Friday is the highlight of relatively light week for economic data.

“Consumer spending will conclude the second quarter with a whimper,” wrote Brian Bethune and Nigel Gault, U.S. economists for Global Insight, in their weekly preview. “This may take the edge off renewed anxiety in the fixed-income markets.”

“Consumption is looking anemic” in the second quarter, agreed Leslie Preston, an economist for CIBC World Markets, in a note to clients.

It appears as if consumer spending, which jumped at a 4.2% pace in the first quarter, slowed to about a third of that rate in the second quarter, Global Insight predicted. Except for the quarter that followed the Katrina disaster, it would be the weakest spending in more than four years. Read our commentary on the struggling consumer.

Details of retail sales

Auto sales were terrible in June, the automakers have reported. Unit sales of light vehicles declined for a sixth-straight month in June to a seasonally adjusted annual rate of 15.6 million.

By comparison, the government’s data on retail auto sales have been much stronger, probably because they exclude the fleet sales to businesses that are falling most sharply. Even considering the definitional differences between the automakers’ figures and the government’s, the gap between the two sets of numbers is widening: The government says retail auto sales are up at an annual rate of 4.8% over the first five months of the year, while the automakers report an annualized decline of 13.2% through June.

Economists expect the gap to narrow. Lehman Bros. economists figure retail auto sales fell 0.8% in June after jumping 1.8% in May.

Our survey points to a 0.2% rise in sales excluding autos.

The weekly reports on retail chain store sales were weak. The Redbook survey showed the slowest growth since the recession ended in late 2001. The International Council of Shopping Centers expects year-over-year growth of about 1.5% to 2% for same-store sales in June, about half the growth rate seen earlier in the expansion. The retailers will report their June sales figures on Thursday.

Gasoline sales probably fell in June as the average price of a gallon of gas fell about 3% compared with May.

Some economists think the retail numbers won’t be so awful. The “super-core” of sales — which excludes volatile autos, gasoline and building materials — should rise 0.5%, close to the recent trend, wrote Drew Matus, an economist for Lehman Bros., in the firm’s weekly preview. Such a showing would be consistent with solid consumer spending, he said.

“Markets have been searching for signs that the weakness in the housing market is spreading to the consumer, but so far spending has remained resilient,” Matus said.

But that’s not the view of another economist.

“Slowly but surely, the tentacles of the housing recession are strangling the consumer,” cutting off one ready source of funding for deficit spending — tapping into home equity, wrote Paul Kasriel, chief economist for Northern Trust.

According to Kasriel, the question the markets and the Fed must now wrestle with is whether the sharp deceleration in consumer spending is “a one-off event or something with more longevity. My bet is the latter.”

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One comment

  1. Anonymous

    First we had “core inflation”, now we have “super-core of sales”.

    Keep the spin coming…

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