June retail sales data from Commerce and NRF show mostly modest gains

Retail sales data for the month of June from the United States Department of Commerce and the National Retail Federation (NRF) showed relatively positive traction on the consumer spending front despite tailing off at the end of the second quarter.

Commerce reported that June retail sales at $422.8 billion were down 0.4 percent compared to May and up 5.7 percent compared to June 2012. Total sales for the April through June period were up 4.6 percent annually.

The NRF reported that June retail sales, which exclude autos, gas stations, and restaurants, increased 0.6 percent on a seasonally-adjusted basis from May and were up 3.0 percent on an unadjusted basis annually. The organization noted that various factors such as strong home prices and stock values are good for consumer confidence, the overall outlook is still uncertain due to still-high unemployment, higher taxes, and policy-related issues.
“The consumer economy is improving but growth rates and retail sales will remain reserved for the foreseeable future,” NRF Chief Economist Jack Kleinhenz said in a statement. “U.S. households have adjusted their spending to a slow-growth economy. With employment and consumer confidence improving, we expect that the second half will be better than the first.”

As LM has reported, with retail sales growth modest at best, there still remains a mixed bag of signals and headwinds on the economic front, including a slightly declining unemployment rate, improving consumer confidence data, as well as encouraging automotive sales and housing data.

These things continue to occur, though, against the backdrop of sluggish GDP growth and general uncertainty regarding the economy.

The continuing trend of slight or flattish sequential retail sales increases remains largely intact due to fairly even retail spending at a time when retailers remain cautious on the inventory planning side and postponing commitments until the until the economic outlook becomes clearer, while they are risking stock outages by having very lean inventories.

Stifel Nicolaus analyst John Larkin recently said in an interview that the consumer is “beaten up” and trying to de-lever, as prices rise and leave little money left over as consumers took a tax hike, regardless of their tax bracket.

“We continue to sort of limp along at a 1.5-to-2 percent GDP growth rate, which is about one third of what you might expect in a normal recession, akin to what we experienced in 2008-2009,” explained Larkin. “It has been a very muted recovery. If you round up job growth numbers to 150,000 per month while we are losing 500,000 per month, unemployment number comes down but the raw number of people employed also comes down and that is not a good thing. Still, we are growing a little bit thankfully and better than Europe for certain. The Fed is doing all it can do to keep things lubricated and stimulated, but until we give the private sector a reason to feel confident, which might take a revision or simplification of the tax code, or until we are serious about reining in the federal budget deficit this year to upwards of $700 billion, it is still too much. We need to be more serious about that and end this silliness in Congress.”

IHS Global Insight US Economist Chris Christopher wrote in a research note that the weak showing in various retail channels indicates that consumers are proceeding with caution despite relatively elevated levels of consumer confidence and some traction on the housing front.

“Looking ahead, we expect real consumer spending to increase at a 1.9% rate for 2013, and then pick up at a faster rate in 2014,” Christopher stated. “The back-to-school season is about to start heating up and these recent numbers do not bode well for many retailers.”

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