Benzinga - The June Retail Sales Report has sparked varying interpretations among economists, resulting in divided opinions on different aspects of consumer spending trends.
Industrial production and manufacturing production both contracted 0.5% and 0.3% monthly in June, respectively, falling far short of expectations.
Traders have largely factored in a 0.25% interest rate increase to 5.25-5.5% by the Federal Reserve in the upcoming week, and they maintain relatively timid expectations for additional rate hikes after the summer, implying 14% probability of a rate hike in September and a 25% likelihood by November.
The U.S. dollar index, as tracked by the Invesco DB USD Index Bullish Fund ETF (NYSE:UUP), inched higher by 0.1%, hitting the psychological 100-level mark.
Now, let’s delve into the main insights provided by notable U.S. economists regarding the June retail sales report:
Jeffrey Roach, Chief Economist for LPL Financial (Charlotte, NC):
- Roach suggests that the retail sales figures indicate a cooling off of consumer activity compared to the previous month.
- Excluding auto sales, there was a 0.2% increase, supported by solid growth in electronics and appliance stores.
- Grocery store sales declined due to lower food prices and weakened consumer demand.
- Non-store retailers experienced a strong 2% increase in sales, marking the highest gain in online sales since last year.
- Roach points out that while retail activity was buoyed by excess savings in recent months, consumers are depleting those reserves and turning to credit to sustain their spending habits.
- Krosby notes that despite the disappointing retail number, it still represents the third consecutive month of positive retail spending.
- Consumer confidence surveys have shown improvement, but there has been an increase in loan rejection rates, particularly for individuals with credit ratings below 680.
- As long as the labor market remains strong, consumers are expected to continue driving the economy.
Bill Adams, Chief Economist for Comerica Bank (Dallas):
- Adams observes that consumer spending growth slowed in June but exceeded expectations for the second quarter, thanks to upward revisions in previously released data.
- Retail sales grew at an annualized rate of 4.7% in Q2, with core retail sales showing robust growth of 6.3%.
- Although trends softened in June, with reduced spending on necessities and gasoline, wealthier households exhibited strong spending, as evidenced by crowded airports and high concert ticket prices.
- Consumer spending helped offset headwinds from inventory de-stocking and an increased trade deficit, likely resulting in a flat real GDP for Q2.
- Nguyen highlights a strong increase in underlying retail sales in June, which contrasts with a sharp decline in industrial production, leading to mixed signals about the economy’s health during a crucial period for rate hike decisions.
- Nguyen believes that American consumers still possess sufficient spending power, estimating excess savings to range between $500 billion and $670 billion by the end of Q2.
- However, weak areas in the retail sector include a decline in spending on food and beverage services, as well as significant decreases in department store sales.
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