The Economy

June Retail Sales Drop Hints at Slowdown

Retail sales fell 0.3% in June, after rising 1% in May, suggesting the U.S. economy could be slowing.
Matthew HellerJuly 14, 2015
June Retail Sales Drop Hints at Slowdown

Retail sales slipped 0.3% last month, an unexpected drop that is raising concerns the economy is slowing again after rebounding from a sluggish first quarter.

The June numbers, reported Tuesday by the U.S. Commerce Department, were the weakest since February. The department also revised May’s retail sales down to show them rising 1.0% instead of the previously reported 1.2%. Economists polled by Reuters had forecast retail sales rising 0.2% in June.

“After a very strong May retail sales report, June’s numbers were certainly a step in the wrong direction for the US economy,” economist Royce Mendes of CIBC World Markets told MarketWatch.

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The Wall Street Journal said some of the weakness in retail sales “probably amounted to payback for a strong May report.” But the weaker spending may also reflect the strength of the dollar.

Falling prices of imported consumer goods, the WSJ explained, “have been carrying over into what consumers pay,” suggesting “spending on consumer goods isn’t quite so weak as the retail-sales report suggested.”

But with June’s disappointing employment report and a sharp drop in small business confidence, the weak retail sales data suggest “the economy might have lost some momentum at the end of the second quarter, having struggled at the start of the year,” CNBC said.

And that could dampen expectations for an interest rate hike from the Federal Reserve this year, which most economists expect could come in September.

“The underlying tone of this report suggests that the recovery is beginning to show some signs of strain. If anything it will temper, at the margin, any consideration for a September rate hike,” Millan Mulraine, deputy chief economist at TD Securities, told Reuters.

Fed Chair Janet Yellen said last Friday she expected the U.S. central bank to tighten monetary policy “at some point later this year.” Yellen could offer more clues on the timing of the first interest rate increase since 2006 when she delivers her semi-annual monetary policy report to Congress on Wednesday and Thursday.