Retailers' Flat Sales Dim Hopes For Growth
Shoppers took a pause in July, keeping retail sales even lower than diminished expectations, in a signal that consumer faith in the economic recovery may be shakier than expected.
Overall sales were flat on the month, the Commerce Department said Wednesday, and rose 3.7% from a year ago, the third straight month of annual deceleration. Analysts expected a 0.2% monthly increase. Excluding a 0.2% drop in motor vehicles, sales edged up 0.1% vs. June.
"The surprise is the consumer is still wanting to save and they're not showing more resiliency," said Jeff Rosen, chief economist for Briefing.com.
Consumer confidence has risen strongly through the summer. The Conference Board's July index rose to its highest since October 2007, and the Reuters/University of Michigan July survey's current conditions index, usually a keen indicator of consumer activity, improved.
But that sentiment isn't supported by wage gains, which have run at about 2% consistently since the recession, just keeping pace with inflation. The lack of wage inflation has also been flagged as a source of weakness in the struggling housing market.
Still, Rosen doesn't think wage weakness is telling the whole story. The personal savings rate has moved up through most of 2014, he pointed out, and now stands at 5.3%.
"We should be spending a lot more of our incomes than we are," he said. "The increase in savings is keeping economic growth from reaching its potential gains and harming the overall economy.
Macy's Customers Skittish
That reluctance to spend is being felt across the retail landscape. Macy's (M) reported weaker-than-expected earnings and sales Wednesday and cut its annual same-store sales forecast. The department store powerhouse said customers don't feel comfortable spending more in an uncertain economy.
Some analysts took the squishy consumer data in stride.
"We expected very little from the July retail sales report, and the data lived up, um, down to our expectations," wrote Regions Bank chief economist Richard Moody in a research note.
He also noted that even with Polar Vortex-slammed January included, average monthly sales are higher than in 2013, and he expects back-to-school spending to pick up in August.
"More significantly, we expect continued improvement in the labor market to fuel faster growth in aggregate earnings, which will support better growth in personal income and, in turn, consumer spending," Moody wrote.
