At 8:30 A.M. (EDT) this morning, the investment community received a key report on the U.S. economy, and at first blush it was far from an uplifting view. Specifically, the Department of Commerce reported that retail sales for the month of May fell 0.2%, matching the consensus expectation for the period. The April figure was also revised from a gain of 0.1% to a decline of 0.2%. It marked the first time in two years that retail sales were down in consecutive months.
The drop in retail sales does not come as a surprise, given the recent weakness in the job market—the nation created a paltry 69,000 positions last month. With many individuals either out of work or having a difficult time finding a new job, it is not surprising that the consumer is spending less on non-essential goods. Even when excluding the volatile energy component from the equation, retail spending rose just 0.1% last month and dropped 0.1% in April.
The latest data on retail sales is definitely not a good sign for the U.S. economy, as the consumer sector accounts for roughly two-thirds of the nation’s economic output. If the consumer is indeed proceeding with caution during the current summer vacation season—data on personal and income and spending issued last week would also suggest such a trend—it could hurt retailers in the months ahead. One positive thing, though, is the recent retreat in energy prices. A further pullback in gasoline prices—which we have seen at the gas pumps in recent weeks—would lower the costs of traveling and could prompt more families to take smaller vacations, specifically those only a car drive away from their homes.
Still, the latest report on retail sales was not an encouraging snapshot of the U.S. economy. And, certainly not the news investors were looking for at a time when signs point to a slowdown in China’s economy and several key euro zone members are in the midst of recessions.
At the time of this article's writing, the author did not have positions in any of the companies mentioned.