Judging from the headlines regarding June’s retail sales, it would be easy to jump to some dire conclusions regarding the state of the U.S. economy. Consumer spending slumped 0.3% overall, and was off 0.1% last month when not factoring in automobile sales.
Headlines like “Weak U.S. retail sales hint at slower economic growth” and “Retail shock: Sale slide for first time in four months” amplified the alarm.
And yet, while the message is one of concern, there’s also far more to the retail sales story than has been adequately told.
Although June’s retail spending was lower, there was nothing about the dip that should have been surprising, or alarming.
June’s Retail Sales Reality
It’s an often overlooked fact regarding the monthly retail sales data from the Department of Commerce, but the percent-change figure is in comparison to the prior month’s total spending rather than the year-ago spending levels for the same month.
In other words, June’s 0.3% dip in consumer purchases was in relation to May’s figure — not June’s total from 2014.
So what? The big “so what” is, retail spending almost always falls in June, with or without food services, and with or without motor vehicle sales. The chart below, which goes back to 2011, shows a lull in June every year that’s displayed, though a June swoon has been the norm for most years before 2011 as well.
For what it’s worth, last month’s retail sales were higher than June 2014’s retail spending in all categories and groupings, save one: gasoline. As the chart indicates, we’re still spending considerably less at the pump than we were as of June of last year. That sizable year-over-year dip is almost entirely — maybe even completely — due to the rout in oil prices that began roughly a year ago.
On that note …
One of the chief complaints voiced regarding the savings consumers were enjoying at the pump was that they weren’t redirecting those discretionary dollars toward other areas.
That pessimistic argument simply doesn’t hold water.
U.S. consumers spent $7.8 billion less at gas pumps last month than they did in the same month of 2014. Yet, total retail spending (including gasoline station sales) still rolled in at a near-record $442 billion in June. That total was $436 billion in June 2014, though, so there’s no way to argue those dollars aren’t trickling into the U.S. economy in other ways.
Bottom Line for the U.S. Economy
None of this it to suggest the U.S. economy is in an ideal situation right now. It isn’t. While unemployment may be mathematically strong, few consumers can deny that good and good-paying jobs remain a little scarce. Plus, corporate earnings remain a bit lackluster (and not just because the U.S. dollar is a little too strong for its own good).
On the flipside, the economy is making forward progress. It’s occasionally ugly progress, with a stumble here and there. But it’s progress.
It makes sense that the not-so-great jobs reappear first. That’s the norm for most economic recoveries. The better jobs, and higher-paying ones, are just now starting to surface en masse again, though, underscoring this idea of forward progress.
As for Tuesday’s retail sales lull, of all the reasons to worry about the future, that’s the least of them. June’s consumer spending almost always taper off, and considering Americans spent almost all of the $7.8 billion that saved at the pump last month, it’s impossible to say they aren’t feeling confident.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
