US retail sales dip 0.3% in June, weighing on Fed's interest rate decision
US retail sales fell 0.3 percent in June, a far cry from analysts' expectations for a modest gain. As the economy has recovered well elsewhere, the weakness in the consumer sector has weighed heavily on the Federal Reserve鈥檚 eventual decision to finally raise long-term interest rates.
A customer, center, checks out at a Wal-Mart Neighborhood Market store in Bentonville, Ark. US retail sales fell 0.3 percent in June, the Commerce Department reported Tuesday, July 14, 2015.
Danny Johnston/AP/File
For the consumer economy, 2015 has been a 鈥渙ne step forward, two steps back鈥� sort of year. June鈥檚 retail sales report did little to change that.
Retail spending by US consumers fell 0.3 percent last month, according to data released Tuesday by the Commerce Department. It was a far cry from the (still disappointing) 0.2 percent rise economists were expecting and a steep comedown from a 1.2 percent surge in May 鈥� a result that had many hopeful that consumers were back in the mix after a sales-stifling winter. Core sales, a measure that excludes vehicles and gas, fell 0.1 percent.
鈥淭his is not a good report,鈥� IHS Global Insight economist Chris Christopher wrote in an e-mailed analysis. 鈥淐onsumers are still cautious despite modest price inflation, relatively well received employment reports, and elevated levels of consumer confidence.鈥�
Analysts had expected a letdown from May, thanks to an early Memorial Day weekend that could have boosted May鈥檚 numbers and a continued trend of very strong vehicle sales. But June鈥檚 result was poor enough that it has experts questioning whether the pace of growth for the year is going to be slower than initially expected.
鈥淯nexpectedly weak retail sales data adds to signs that the US economy is slowing again after pulling out of the soft patch earlier in the year,鈥� MarkIt economist Chris Williamson writes via e-mail. The worry, he says, is that a reasonably strong spring was not representative of long-term trend, but merely a rebound from slowness in the first quarter.聽
鈥淭he weakness of the sales data in June, alongside聽 and a smaller than hoped-for rise in non-farm payrolls, all points to the economy having moved down a gear after this rebound, settling into a far weaker underlying pace of growth than was seen throughout much of last year,鈥� he writes.
It was a broad-based decline, with almost all retail categories seeing a drop. Auto sales dipped 1.1 percent after a strong 1.8 percent rise in May. Sales at building and garden stores fell 1.3 percent, and furniture sales saw a 1.6 percent drop 鈥� the steepest since January of this year.聽
Buoyed by higher gas prices, sales at service stations actually rose 0.8 percent, but fuel prices remain relatively low even with recent gains. The average retail price for gas from April to September聽 is expected to even out at $2.67 per gallon, the lowest inflation-adjusted price over the same period since 2009, according to a release from the US Energy Information Administration (EIA).
As the economy has recovered well elsewhere, the weakness in the consumer sector has weighed heavily on the Federal Reserve鈥檚 eventual decision to finally raise long-term interest rates. 聽Fed chair Janet Yellen 聽has reaffirmed that the central was still on track to raise rates 鈥渟ometime this year,鈥� based on job market strength and some long-awaited growth in wages.
But consumer spending still hasn鈥檛 picked up the way many had hoped, and after months of growth, the job market is starting to show its seams, with a lack of progress in areas like labor force participation and a continuing high number of Americans working part time because they can鈥檛 find a full-time job. 聽In comments late last week, Ms. Yellen stated again that the economy was still on track for a rate hike in 2015, but cautioned that "the course of the economy and inflation remains highly uncertain, and unanticipated developments could delay or accelerate this first step."
聽Williamson writes that June鈥檚 retail sales result could test that resolve even further. The numbers 鈥渁dd to a growing body of evidence which suggests that the economy is slowing again as we head into the second half of the year,鈥� he writes. 鈥淪uch a slowing will most likely persuade policymakers to hold off on raising rates until next year unless there is a swift revival of demand in coming months.鈥�