It’s shaping up to be a cruel, cruel summer, as a long line of disappointing U.S. economic data only seems to be getting worse.
Just look at the latest reading on retail sales, which have now declined for two months in a row. The latest culprit for the overall decline was a sharp drop in gas prices.
Ordinarily that would be a good thing, seeing as just a couple months ago pump prices were poised to hit record levels heading into the summer driving season. Pain at the pump was supposed to put a crimp in consumer spending.
What’s worrisome, then, is that gas prices have come down a long way — but consumers still aren’t spending on a wide range of other goods.
Consumer spending accounts for about 70% of economic activity, and retail sales account for about half of that. Which makes the latest batch of data look decidedly disappointing.
Taken as a whole, retail sales fell 0.2% in May, which matched economists’ average estimate. However, sales were revised down to a 0.2% drop for April (from the earlier 0.1% rise). That’s the first back-to-back monthly decline in two years — and, as always, the trend is more important than any single data point.
True, strip out gas station sales, and retail spending did inch up 0.1% in May. But then it just so happens that sales minus gas declined by 0.1% in April, so all in all, it was a wash. And, again, the trend suggests that a slowing job market and stagnant wage growth has consumers counting each and every penny.
On the bright side, car sales were relatively robust, but exclude that category, and retail sales dropped 0.4% last month, missing economists’ forecast by a wide margin.
Other big-ticket items saw increases, too, including sales of furniture and appliances. But here, too, the trend is not the market or the economy’s friend: So-called core retail sales, which strip out autos, gasoline and building materials from the total sales figure, came in flat for May.
Those dismal details led Goldman Sachs‘s (NYSE:GS) chief U.S. economist to cut his tracking estimate for second-quarter GDP. Jan Hatzius now sees the economy growing at an annualized 1.6% in the current quarter, down from an already anemic 1.8% pace.
“The report was a negative for our tracking estimate of Q2 GDP growth, due to the downward revision to core/control retail sales in March and April (the flat reading for May was in line with our forecast),” Hatzius wrote in a report to clients.
And although some of that weakness may be offset by stronger inventory accumulation going forward, “weakness in building material sales also trimmed our forecast for residential investment slightly,” the economist said.
The bottom line is that just because a some key categories showed strength, it’s probably still too generous to call the report “mixed.” After all, we’re now three years into the recovery. Monthly retail sales hit a record high in absolute terms back in March at $406 billion — and they have been a slowly melting iceberg ever since.
That hardly bolsters confidence in an accelerating, much less self-sustaining, recovery.