Retail Sales Much Weaker than Expected in June

June retail sales declined -.9% MoM (consensus -.1%), the largest monthly decline in almost two years. Excluding autos, retail sales fell -.4% MoM (consensus +.2%), the largest decline in nine months. Sales excluding gasoline fell -.9% MoM, the most since August 2005 as gas station sales fell -1.1%, on lower gasoline prices late in the month. Service station sales had risen over 4% in May as gasoline prices were rising toward the high of this year. Building materials sales declined by -2.3% MoM, and furniture sales fell -3% MoM (the biggest drop in over 4 years) as lower home prices slow home improvement projects. The retail sales data the government uses for calculating GDP is retail sales less autos, gasoline and building materials (these components come from other sources for GDP). This figure was unchanged in June after rising +.9% MoM in May.

Motor vehicles and parts fell -2.9% MoM (+.4% YoY). Electronics fell -1.4% MoM (+1.4% YoY). Clothing declined by -1.4% MoM (+4.9% YoY).

Areas showing strength were health care at +1.2% MoM (+6.7% YoY), food and beverages up +.4% MoM (+6% YoY), and sporting goods at +.4% MoM (+6.2% YoY).

Department stores fell -1% MoM while non-store retailers rose +1.2% MoM. Restaurant sales rose a minimal +.1% MoM.

Retail sales account for half of all consumer spending, which accounts for 2/3rds of GDP. So a slow down in retail spending directly implies a cooling of economic growth. Higher gas prices and falling home prices are negatively impacting spending. The low unemployment level and rising wages help support consumption.

This data is likely to reduce 2nd quarter GDP estimates. The weakness in retail sales was relatively broadbased, and shows that consumption is declining notably.