Daily Spotlight: Soft Retail Sales

Summary

U.S. consumers are treading water at the start of the summer, despite a buoyant job market and gasoline prices that are 25% lower than last summer. This supports the view that only one more rate hike might offer the best chance of cooling inflation without dunking the consumer. U.S. retail sales in June were up 1.5% from a year earlier, according to the U.S. Census Bureau. Retail sales (which are reported on a nominal basis) including inflation grew at half the pace of the Consumer Price Index, which was up 3% in June. At a June conference, Walmart CFO John David Rainey said while headline inflation is coming down, but a cart of groceries is still 20% more expensive than it was two years ago. That’s forcing shoppers to make hard choices. Sales at food and beverage stores rose just 1.3% last month, even as food-at-home prices were up 4.7% according to the CPI report. Shoppers are trading down to store brands and eating hot dogs rather than steak. As well, an increasing number of shoppers who make more than $100,000 a year are switching to Walmart and other discount grocers. Weakness in discretionary categories, including furniture stores (-4.6%), building materials, garden equipment and supplies dealers (-3.2%), and department stores (-5.2%) show that consumers are reluctant to tap credit cards at record-high rates. Business at restaurants and bars remained strong, jumping 8.4% as consumers allocate extra cash to services rather than goods. Retail trade sales, which exclude food services and drinking places, were up just 0.5% year-over-year. The nonstore retailers category, dominated by e-commerce, was up 9.4% year-over-year.