Retail Sales Are Now Sluggish

The Census Bureau gave us the latest report on retail and food services sales on July 14. The chart shows the data and about all you can say about the first half of 2017 is “pretty flat.”

Total retail and food services sales hit a record of $474.5 billion in April, seasonally adjusted (L: always is unless we say otherwise). They fell 0.1 percent in May from that level and another 0.2 percent in June.

The June total of $473.5 billion was up 2.8 percent from June 2016. For the first half of 2017, total retail and food services sales were $2.8 trillion, up 3.9 percent from the same six months in 2016.

The star performer continues to be “Nonstore retailers” (that’s Amazon and catalog sales). They were up 9.2 percent in June from a year earlier and posted a leap of 10.8 percent year-over-year in the first half of 2017.

Because the data are in current prices and several key categories (e.g., gasoline and cell phone charges) have fallen in price, real personal consumption expenditures for the second quarter of 2017 should be up more than double the puny 1.1 percent we saw in the first quarter. That will help real GDP grow far more rapidly than in the first quarter as well.

We’ll get the first glimpse of those data on July 28 when the BEA releases the advance data on the second quarter of 2017 and the revisions for 2014 through the first quarter of 2017. We’ll give you an analysis of the revisions and the new data then.

We expect to see significant increases in retail sales soon. We have record numbers of people employed earning more money than ever before. The net worth of consumers is at the highest levels ever seen and it is rising.

Consumer confidence on all major indices remains at very high levels, although below the euphoric numbers recorded right after President Trump’s election victory. The next retail sales report will appear on August 15. We’re expecting to see an uptick in activity in July, but we’ll have to wait and see.

L: I have a couple of questions here. In our May 15 blog, we said that “consumers are back to leading the charge” when retail and food services sales went up. Now those same sales have flattened. Why? I know you said you expect them to go up again, but why down at all? And question #2, what is the relationship of real personal consumption expenditures and retail and food services sales?

J: Answer #1 Consumers are still leading the charge. They’re just not going ahead so quickly as they could and should be. Perhaps that’s because of uncertainty over how much they’ll have to pay for health insurance. Incompetent dilly-dallying by some Republican senators and President Trump has frightened many consumers so they are building up their savings.

Answer #2 Retail and food services sales account for about 1/3 of personal consumption expenditures. Don't forget that people also spend money on services, not just stuff. And things like houses and health care are not part of retail and food services sales.