June Retail Sales
Sales: Down 0.5 percent; Vehicles: Down 0.6 percent; Gasoline: Down 1.6 percent
IN A NUTSHELL:
“Instead of shopping ‘til they drop, households have dropped shopping.”
WHAT IT MEANS:
Consumers have decided that the malls are foreign territory and they don’t have passports. For the third month in a row, retail sales declined, led by a sharp decline in gasoline. That, of course, was caused by a large fall in prices. But even excluding gasoline, people didn’t do any buying.
Furniture, sporting goods, healthcare, garden and building supply as well as appliance and electronics stores all posted declines. Vehicles sales were off and that was a major surprise as unit sales were up. I am not clear what is happening with this sector. We bought some stuff online and some food and clothing but not much else.
MARKETS AND FED POLICY IMPLICATIONS:
This third consecutive decline retail sales, the first such period of weakness since the end of 2008, is not good news. It clearly indicates that households are just not in the mood to spend.
Since consumers are the key to any acceleration in growth, don’t look for a strong GDP number anytime soon. Indeed, unless the massive decline in defense spending was reversed during the spring, second-quarter growth could rival the weak first-quarter number.
We are suffering from a gross lack of common sense in Washington and the fiscal cliff and uncertainty it has created is already slowing economic activity.
Since consumer confidence is linked to job gains and the unemployment rate, the resulting slowdown in payroll increases is turning into a real economic problem.
Given that little will happen in Washington before the election (not that much has been accomplished the past couple of years), don’t expect the weakening confidence and soft growth trend to change soon. That is what investors will likely conclude since a sluggish economy does not improve earnings prospects.
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