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Takeaway: Retail Sales slide to close out 2Q. PCE will accelerate QoQ in 2Q but nothing like the bounceback we saw in 2Q14. We remain a 2%+/- economy

Summary Review:   Headline Retail Sales declined -0.3% sequentially and decelerated on both a 1Y and 2Y basis in June.   While the sequential decline in Auto Sales in June telegraphed the Headline deceleration, the magnitude of retreat was disappointing and the trend across the various sub-aggregates was similarly languid.   

Whether aggregate Income growth can maintain its recent ~5% pace and Services and NonDurables consumption can continue to buttress Household Spending growth to the same extent they have in 1H15 remain TBD.  The broader trend is Wage & Salary income and Services consumption (~2/3rds of HH spending) remains positive but the internals in the June employment report were soft and employment & consumption comps steepen in 2H.

Small Business Confidence, meanwhile, declined -4.2 pts in June with the Expectations and Job Openings readings leading the decline.  At 94.1 on the Index, NFIB optimism sits at its lowest levels since March of Last year. Consumer Confidence is a canonical late-cycle indicators and is presently just south of prior cycle peaks. 

In short, middling-to-down is not what Team Janet wants to see - particularly with sirenic hopes of a September lift-off still lingering and a sustained attempt at policy normalization stirring restlessly in the queue.  

June Notables:   

  • Gas:  Gas prices were up ~3% in June but that only translated to a +0.8% sequential gain in Gas Station sales
  • Auto’s:  Auto’s & auto parts were down -1.1% MoM.  Vehicle Sales declined -3.5% sequentially to 17.1 mm units in June – down from May’s gangbusters 17.7 mm figure (a 10Y and post-recession high).  This was a known known with the Vehicles Sales figures reported on  7/1.
  • Building/Furniture:  Building Materials and Furniture were down -1.3% and -1.6%, respectively, in June.  The magnitude fo decline is a bit surprising given the strength in the housing data in 2Q to-date.
  • Industry Momo: 11 of 13 Industries reported decelerating MoM growth while 9 of 13 decelerated sequentially on a YoY basis.
  • Inventory-to-Sales:  We’ll get the updated Inventory-to-Sales ratio’s a bit later but the trend remains higher with Inventories continuing to grow at a premium to sales.  Inventory's contribution to GDP is positive, until it isn't. 

Growth Context: 

  • Reported (QoQ Annualized):  In GDP accounting terms (QoQ Annualized; yellow box in Summary Table below) Retail Sales in 2Q are up +3.3% and accelerating relative to 1Q.  In short, household spending on goods will accelerate sequentially in 2Q but we will not see the magnitude of bounce we saw last year off a bad 1Q – Retail sales were up +6.9% QoQ annualized in 2Q last year
  • Year-over-Year:  While May reflected a modest acceleration, June returned to the broader trend of deceleration and, on quarterly basis, 2Q is tracking lower than 1Q and well below the mid-4%’s observed mid-year last year when goods was supporting PCE

…and, of course, the requisite Advance Report caveats.   Monthly Advance Retail Sales are notoriously volatile on a month-to-month basis, subject to significant revision and reported on a nominal basis - making it difficult at times to distinguish whether sales trend changes are due to prices or volumes.  What it offers in terms of timeliness, it lacks in terms of precision and magnitude.

#ConsumerCycle:  Retail Sales & Confidence Slide to Close 2Q - RS Cycle

#ConsumerCycle:  Retail Sales & Confidence Slide to Close 2Q - Retail Sales Headline   Control YoY

#ConsumerCycle:  Retail Sales & Confidence Slide to Close 2Q - Retail Sales vs PCE YoY

#ConsumerCycle:  Retail Sales & Confidence Slide to Close 2Q - Retail Inventory to Sales

#ConsumerCycle:  Retail Sales & Confidence Slide to Close 2Q - RS Summary Table

#ConsumerCycle:  Retail Sales & Confidence Slide to Close 2Q - Confidence Cycle

#ConsumerCycle:  Retail Sales & Confidence Slide to Close 2Q - NFIB LT

#ConsumerCycle:  Retail Sales & Confidence Slide to Close 2Q - Confidence Monitor

Christian B. Drake

@HedgeyeUSA