INDICATOR: June Retail Sales
KEY DATA: Sales: up 0.4%; Excluding Vehicles: 0.0%
IN A NUTSHELL: “Household spending has become really strange as people are buying some big-ticket items but not basic goods.”
WHAT IT MEANS: If this is a consumer driven economy, who knows where things are going? Households may not be out there shopping ‘till they’re dropping or even shopping ‘till they’re tired but their spending patterns is really weird. Retail sales rose decently in June but that was essentially due to the surge in vehicle purchases. Don’t get me wrong, it’s really good that SUVs are flying out the showroom doors, but it would be nice if demand for a whole variety of products also were up. That didn’t happen. While sales of other big-ticket items such as furniture increased in June, demand for electronics and appliances eased. Sales of gasoline jumped even more that prices so demand did improve and clothing purchases surged. But food, both at home and at restaurants was off and home goods stores were clobbered. In contrast, sales on the net were great. In other words, there was absolutely no pattern in the spending that I could see.
MARKETS AND FED POLICY IMPLICATIONS: The June retail sales numbers were disappointing as most estimates especially given the flat non-vehicle number. But it is also hard to conclude that consumers have decided to slow their spending. The inconsistent pattern across categories raises some questions about what households are thinking and doing. Undoubtedly, investors will be worried about how strong second quarter growth will be. Most estimates are for below 2% growth again. Still, it is also earnings season and so far, earnings are decent. The interesting thing is that economic data should lead to some forward looking thinking about profits while earnings releases simply represent what has just happened. Does it really matter if second quarter earnings were good if the economy is slowing? Well, it’s the markets so who knows what really drives daily movements. Any disappointing report should remind the Fed anti-QE members that it is the economy that drives inflation and with inflation and inflation expectations ebbing, the FOMC should be focusing on growth. Unfortunately, it’s the Fed and there are some members who never let any economic data point get in the way of a good academic argument.