Retail sales in US unexpectedly fall on broad-based retreat

The Commerce Department's report on sales showed auto dealers, restaurants, furniture and clothing stores were among the retailers that showed declines last month. PHOTO: REUTERS

WASHINGTON (BLOOMBERG) - Sales at U.S. retailers unexpectedly dropped in June, upending optimism about the strength of the rebound in consumer spending during the second quarter.

Purchases decreased 0.3 per cent after a 1 per cent advance in May that was smaller than previously reported, Commerce Department figures showed Tuesday in Washington. The median forecast of 82 economists surveyed by Bloomberg called for a 0.3 per cent gain. Eight of 13 major retail categories showed declines in demand.

An early Memorial Day holiday probably contributed to boosting sales in May at the expense of last month, marking a more subdued performance for the quarter. Stronger gains in incomes will probably be needed to give consumer spending, which accounts for almost 70 per cent of the economy, a bigger lift heading into the second half of the year.

The payback in June partly reflects difficulty in adjusting the data for the early holiday, Ted Wieseman, an economist at Morgan Stanley in New York, wrote in a note before the report. "So it probably makes sense to consider modest growth in May/June combined and look to see whether there is renewed upside in July and then moving into back-to-school shopping."

Another report Tuesday showed the cost of goods bought abroad dropped in June, restrained by automobiles. The import- price index declined 0.1 per cent last month after advancing 1.2 per cent in May, according to Labor Department figures.

Excluding fuels, prices fell 0.2 per cent last month. The cost of foreign cars decreased 2 per cent over the past year, the biggest 12-month drop in data going back to 1981.

The Commerce Department's report on sales showed auto dealers, restaurants, furniture and clothing stores were among the retailers that showed declines last month.

While the drop in autos in June was in line with industry data released earlier this month, the industry remains a bright spot.

Cars and light trucks sold at a 17.1 million annualized rate in June, down from a 17.7 million pace in May, figures from Ward's Automotive Group showed. It capped the strongest quarter since 2005. Auto sales so far in 2015 have averaged a 16.8 million rate, beating last year's 16.4 million that was the strongest in eight years.

"We feel really good about the current environment," Katharine Kenny, vice president of investor relations at Richmond, Virginia-based used-vehicle retailer CarMax Inc., said at a June 24 conference. "Consumers are, obviously, feeling good about buying a car, and that's probably partially driven by the decrease and the continued low price of gas."

Retail sales excluding autos fell 0.1 per cent after a 0.8 per cent increase in May, Tuesday's report showed. They were projected to rise 0.5 per cent, according to the Bloomberg survey median.

Core sales, the figures that are used to calculate gross domestic product and which exclude such categories as autos, gasoline stations and building materials, declined 0.1 per cent last month after increasing 0.7 per cent in May. The median estimate in the Bloomberg survey called for a 0.3 per cent gain.

Economists at Morgan Stanley projected core purchases would fall 0.2 per cent, the only ones in the survey to forecast a decline.

Averaging May and June, retail sales climbed 0.15 per cent excluding autos and gasoline. That matched the average gain over the first four months of the year, suggesting there is little momentum in spending.

Consumers instead have been pocketing the savings from lower fuel costs. The average cost of a gallon of regular gasoline was $2.77 on July 12, according to AAA, the biggest U.S. auto group. While that's up from an almost six-year low of $2.03 in January, it's still far short of last year's high of $3.70.

The job market has been a strong point. Filings for unemployment benefits have held below 300,000, a level that economists say is consistent with a healthy labor market, for the past 18 weeks. The unemployment rate dropped in June to 5.3 percent, the lowest since April 2008.

Employers have added to payrolls at a steady pace in 2015 even as the economy slumped in the first quarter. Hiring gains have averaged 208,330 a month this year after a 259,670 average in 2014 that was the best since 1999.

Further progress on wage growth probably will be needed to propel consumer spending in the second half of the year.

While wages for private sector employees in the first quarter were running at their fastest pace since 2008, according to the employment cost index, other measures are less encouraging.

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