MARKET TRENDS: Retail Sales Disappoint; Import and Export Prices Down

U.S. retail sales fell unexpectedly in June as consumers cut back their spending on automobiles, food, furniture, and clothes. This was previously an area that had bolstered growth.

Retail sales declined 0.3% month-over-month (MoM) in June, the Commerce Department said on Tuesday. It seems that consumers are still cautious, despite a consistent improvement in the job market.

The weak retail sales data suggests the economy might have lost some momentum at the end of the second quarter, after having struggled at the start of the year. The fall in retail sales in June was the weakest since February, and a sharp contrast to market expectations of a 0.2% rise, as well as May’s robust jump of 1% (revised from the initial estimate of 1.2%).

Core retail sales, excluding autos, and gas and food, fell 0.1% in June against an increase of 0.7% in May and market expectations of a 0.5% rise. Spending at restaurants and bars slipped 0.2%, while that of building materials fell 1.3%.

Online and catalog retailers reported a 0.4% drop in sales, while clothing sales shrunk 1.5% – the largest decline since September 2014. Auto sales fell 1.1% against a large gain in May which touched the decade’s highest level.

However, rising gasoline prices supported the sales at service stations where receipts rose 0.8%, and sales at electronics and appliance stores rose 1%, the biggest rise since September of last year.

Despite the drops in June, consumer spending in the second quarter of the year was better than the first. In May, consumer spending was up 0.9%, the highest level in nearly six years, as income improved and savings declined. Also, the June Conference Board’s Consumer Confidence Index jumped 17.4% year-over-year (YoY) to its second-highest level since the recession ended in June 2009.

Consumer credit, which includes auto, student, and credit card loans rose to 6.5% YoY in May. All of these indicate that consumers are still confident; retail sales could rebound going forward. Rising retail sales will trigger overall growth in the second quarter to about a 2.5% to 3% annual rate, up from the first quarter, when the economy contracted 0.2%.

Also, June import prices in the U.S. declined for the 11th month in the past year with the lingering effects of a strong dollar offsetting rising costs for petroleum products. Import prices dipped 0.1% last month after a downwardly revised 1.2% increase in May, the Labor Department said on Tuesday.

The market expected import prices to move up 0.1% after a 1.3% rise in May. Although, the prices fell 10% in June compare to the same period of the previous year, imported petroleum prices rose 0.8% after surging 11.7% in May.

Excluding petroleum, import prices were down 0.2%, reflecting impact from the strengthening U.S. dollar. The dollar has gained 11.6% against the currencies of the U.S.’s main trading partners since June 2014, on an expectation that the Federal Reserve will raise interest rates this year. As per the latest report, export prices fell 0.2% in June following a 0.6% rise in May. Export prices dropped 5.7% in the 12 months through June.

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