June 2017 Retail Sales

Retail Sales declined for a second consecutive month in June 2017 according to data from the Census Bureau. Following May’s upwardly revised decline of 0.1 percent (originally -0.3 percent), this indicator dropped 0.2 percent. Not only was the monthly change negative, but the year-over-year trend decelerated to just 2.8 percent from 4.1 percent in the prior period.
 

Weakness was widespread with most of the positive categories barely budging and pretty large declines in other areas. Auto, furnishings, and electronics sales all increased just 0.1 percent in the period. Sporting goods, hobby, book & music store revenues fell 0.6 percent, and grocers’ receipts declined 0.5 percent. Department stores continued struggling with a drop of 0.7 percent in purchases. Miscellaneous stores (fortunately this is not a large category) experienced a 3.1 percent drop. One silver lining came from nonstore retailers which saw sales increase 0.4 percent, a sign of evolving consumer behaviors.
 

Even Atlas’ favorite line-item resumed its struggle. A month after climbing for just the second time this year, food services & drinking places dropped 0.6 percent. This puts this closely watched category at its worst level since December 2016. Atlas pays special attention to this segment of the release because it represents the most discretionary spending category. When Americans begin to feel less comfortable with their financial situation, eating and drinking away from home get substituted by meals and beverages from their own kitchens. The year-over-year trend for this portion of the report has slowed dramatically since the start of the year when it was 6.4 percent; its current reading is just 1.7 percent.
 

Consumers have led the recovery since the end of the Great Recession but may need some help if this virtuous portion of the business cycle is to continue. The most likely area of support could come from capital investment since it represents the second largest segment of the economy. We will cover this item in the monthly durable goods orders report when it is released. Compared to previous economic upswings, firms have been reluctant to invest, so a change in behavior would a great help to the continuation of America’s current economic expansion.