Retail Sales: Second wind

The latest retail sales numbers push back on recent signals of a slowing consumer and questions around the ability to sustain PCE under interest cost pressures.

Jul 16, 2024

The consumer feeling less flat this month

Headline June retail sales came in flat as the consumer remained more resilient than recent trends have been signaling.
Core retail sales data paints an even stronger picture of consumer demand at +0.9% MoM growth as the month was pulled down largely by Gas Stations and Auto spend.
The numbers could ease pressure on the Fed around demands for more immediate rate cuts by easing fears of what has been an increasingly negative outlook for the consumer.
The consumer spending forecast is further complicated by data showing that consumer credit quality and household cash flow pressures are a burden and raise the question of whether some of today’s spend is tomorrow’s delinquencies.

Retail Sales for June came in ahead of expectations for contraction after recent consumer sentiment readings (Consumer Sentiment: Still Feeling the Heat 7-16-24) implied recession risk or at a minimum a PCE fade. After a more volatile start to the year, this month is back to showing growth vs. the Dec 23 print. The overall mix of line items points to a consumer that has some more purchasing power ahead whether discretionary or nondiscretionary even with the higher interest bill. The initial UST reaction saw the 10Y rise before rallying as the focus switched back to Powell’s comments on cuts coming before a 2% PCE inflation number that is unlikely to be reached. Last week’s CPI report might have helped somewhat as well.

The headlines this past month saw several large consumer players talking up price sensitivity for consumers and rolling out initiatives to bring down prices (or change value propositions) to recapture a consumer spending rate that had been dwindling. Those companies are getting a real-time study on price elasticity, where pass-through of cost and wage inflation is no longer the easy ticket to revenue growth seen the past few years. Though consumer spending behavior is more selective and could drive further moderation of retail sales growth, employment continues to be a solid foundation preventing the consumer from cracking just yet.

The above chart breaks out some key cuts of retail sales numbers and the underlying line items. The Retail Sales ex-Autos line is up +0.4% MoM in June with declines in Auto sales volumes after a strong May comp leaves the Autos ex-parts line down -2.3% MoM. Spending at the pump was a key contributor to a lower headline print once again this month, but redirection of extra budget room from lower gas prices could very well be propping up some other discretionary spend.

Core retail print at +0.9% is a good month and shows strength across its components all the lines in the green except for sporting goods & hobbies. Nonstore retailers (i.e. online shopping) are now the largest source of spending in the retail sales lines. Numbers for July could again be influenced by the Prime Day effect and the read-through from the Nonstore retailers number. That could provide a data point on whether consumers are starting to feel shopping fatigue.

If consumer credit metrics continue to deteriorate, then one scenario is the consumer showing some ability to self-regulate after a post-COVID spending spree. Until then, today’s release paints a consumer picture getting murkier, but the data offers a good reminder of resilient consumer demand as employment continues to hang in.

Contributors

Kevin Chun, CFA kevin@macro4micro.com

Glenn Reynolds, CFA glenn@macro4micro.com

Macro4Micro

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