Weak Retail Sales a Sign of Slow U.S. Consumer Spending

By DailyForex | Updated August 14, 2014 AAA

U.S. retail sales unexpectedly stalled in July, pointing to some loss of momentum in the economy early in the third quarter and showing the worst performance in six months as car demand slowed and tepid wage growth restrained U.S. consumers. The Commerce Department said that retail sales, which had increased 0.2 percent in June, were in part held back by a second straight month of declines in receipts at auto dealers. July's reading was the weakest since January.

Retail sales account for a third of consumer spending. Economists had forecasted increased sales of 0.2 percent in June, expecting a pick-up in the months ahead as the labor market continues to settle.

Job growth has not yet nudged the wage gains needed to boost household purchases. This can be a sign that economic expansion would probably not sustain the second-quarter pickup into the end of the year. Job openings rose in June to the highest level in more than 13 years, the Labor Department reported yesterday. Employers have added more than 200,000 jobs in each of the past six months, the best performance since 1997. Despite this, inflation-adjusted average weekly earnings dropped 0.2 percent in the 12 months through June, the worst performance since October 2012, according to Labor Department data.

With layoffs and job openings back to their pre-recession levels, further gains in employment are in the cards. Data on manufacturing and services sectors have suggested the economy was growing solidly.

Stocks rose, rebounded from yesterday’s decline as investors assessed corporate earnings reports. The Standard & Poor’s 500 Index advanced 0.5 percent to 1,943 at 9:33 a.m. in New York. The dollar fell against the euro on the data, while prices for U.S. Treasury debt pared losses. U.S. stocks opened higher.

Core retail sales, not including automobiles, gasoline, building materials and food services which corresponds most closely with the consumer spending component of gross domestic product, edged up 0.1 percent in July. Core sales are used to calculate gross domestic product.

Sales at clothing retailers rose 0.4 percent and receipts at sporting goods shops gained 0.2 percent. Retailers such as Macy’s Inc. are relying on promotions and discounts to entice customers, whose spending accounts for about 70 percent of the economy.

All in all, the world’s largest economy grew at a 4 percent annualized rate in the second quarter after contracting 2.1 percent in the first three months of the year, its worst performance since 2009, during the final stages of the recession.

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