Disappointing June Sales Shave Q2 GDP
- June Retail Sales declined by 0.3 percent, after gaining 1.0 percent in May.
- Ex-auto Retail Sales dipped by 0.1 percent, with most broad categories down.
- The National Federation of Independent Business’ Small Business Optimism Index fell in June to 94.1.
Retail sales finished the second quarter weaker than expected, with June sales down 0.3 percent, and May revised down to a still strong 1.0 percent gain. We knew that unit auto sales eased off their blistering 17.8 million unit pace in May, to a solid 17.2 million unit pace in June. This brought retail sales of autos and parts down by 1.1 percent in June. However, we were expecting to see strong non-auto retail sales for June, reflecting good job growth and rising consumer confidence. That did not happen. Instead, non-auto retail sales fell slightly, by 0.1 percent, with weakness spread over several categories. Furniture and appliance store sales fell by 1.6 percent in June, out of synch with recently improving home sales. Building materials sales fell by 1.3 percent after dipping by 0.4 percent in May. Food and beverage store sales were unchanged. Clothing store sales fell by 1.5 percent. Gains were seen in electronics store sales, up 1.0 percent for the month. Gasoline station sales gained 0.8 percent, consistent with reports of an active summer driving season. General merchandise store sales were up by 0.7 percent. The weak end to second quarter nominal retail sales translates into a downgrade for our expectations of Q2 real consumer spending, which may show about 3 percent annualized growth for the quarter. This is well below our July forecast for Q2 real consumer spending, and so adds downside risk to our July estimate of Q2 real GDP growth at 3.0 percent. Something closer to 2.5 percent now appears to be more likely for Q2 real GDP growth, still a significant improvement over the -0.2 percent decline for Q1 real GDP.
The National Federation of Independent Business’ Small Business Optimism Index fell in June to 94.1, its lowest level since March 2014. The rather gloomy tone of the report suggests that Main Street America is not expecting a growth rebound in the second half of the year. “The index decline is not a disaster, just a big disappointment and another failed attempt to reach a solid growth path. The weakness was substantial and across the board, showing no signs of a growth spurt in the near future,” wrote Bill Dunkelburg, author of the report. The NFIB index can trail rather than lead macroeconomic trends, so we view it with less pessimism, but it is an important view on small business sentiment.
Market Reaction: Equity markets opened with gains as an arms control deal with Iran was announced. The 10-year Treasury yield is down to 2.42 percent. NYMEX crude oil is up to $52.30/barrel. Natural gas futures are down to $2.84/mmbtu.
For a PDF version of this Comerica Economic Alert click here: Retail Sales 07-14-15.