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Retail Sales Unexpectedly Sink Below the Lowest Economist's Estimate; September Hike? Really?

A month ago, following the Expected Retail Sales Bounce, I stated "A sales snapback was coming at some point. May was the month following months of disappointments."

Key Questions

Here were my two key questions:

  1. Will the surge in spending continue?
  2. How Much Longer Can Subprime Auto Sales Lead?

Economists Surprised Again

The surge in spending did not continue.

Today's report not only revised last month's sales numbers lower, this month surprised if not shocked economists, with negative numbers below any forecast in the Bloomberg Consensus Estimate.

Retail Sales

Economists predicted a rise in sales of 0.3%. Actual sales came in at -0.3 percent, a half-percentage-point below the lowest estimate, and another wrong sign for the economists.

One month does not tell a story, but it may provide clues.

Advance Retail Sales Numbers

Let's dive into the Census report for additional details on Advance Retail Sales for June.

Business Percent Change
June 2015 Advance From May 2015 Preliminary From
May 2015 June 2014 April 2015 May 2014
Retail and food services total -0.3 1.4 1.0 2.3
Total (excl. motor vehicle & parts) -0.1 0.1 0.8 0.9
Retail -0.3 0.6 1.1 1.6
Motor vehicle & parts dealers. -1.1 6.5 1.8 8.0
Auto & other motor veh. dealers -1.0 7.1 1.9 8.6
Furniture & home furn. stores -1.6 4.1 1.4 6.7
Electronics & appliance stores 1.0 -0.4 0.2 -1.5
Building material & garden supplies -1.3 -1.4 -0.4 2.3
Food & beverage stores 0.0 2.4 0.5 3.6
Grocery stores -0.2 2.2 0.6 3.4
Health & personal care stores 0.2 1.3 -0.4 2.9
Gasoline stations 0.8 -17.1 3.7 -18.8
Clothing & clothing accessories -1.5 1.9 1.4 4.1
Sporting goods, hobby, book & music 0.1 6.6 0.6 7.8
General merchandise stores 0.7 1.2 1.4 0.3
Department stores (ex. L.D.) -0.6 -1.7 1.9 -2.0
Miscellaneous store retailers -0.2 2.9 -0.1 5.1
Nonstore retailers -0.4 3.0 0.3 5.6
Food services & drinking places -0.2 7.7 0.2 8.6

Economic Comparison

  • If you are a Keynesian economist, that first column of numbers will look shockingly dismal.
  • If you are a normal human being with an ounce of common sense, you may come to the conclusion that spending money one does not have on junk one does not need is actually a good thing.

Retail Sales vs. Last Month

Retail Sales vs. Last Month

Retail Sales vs. Year Ago

Retail Sales vs. Year Ago

Subprime Auto Loans

That last chart shows the real driver for retail sales: subprime auto loans. When that goes, it's likely all over. Was this the month?

September Hike? Really?

This report will undoubtedly shave a few tenths of a percent off second quarter GDP. It will also raise questions about the strength of the economy.

Unless we see a sharp economic rebound in the next two months, the Fed won't hike in September.


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