Retail sales number for June

Good morning everyone.

The news is that U.S. retail sales were down 0.5% in June from their levels in May.  This level compares to an expectation from economists of a 0.3% drop.  However, if you exclude food and energy prices, both of which fluctuate dramatically, then retail sales were up 0.1%.

Analysis: My preference is to look at the retail sales figure sans energy prices.  Energy prices go up and down and by large amounts on a weekly basis.  This volatility makes them good candidates to eject from a retail sales figure as they do not get at the importance of the data.  Namely, are consumers spending or are they not spending?  In other words, retail sales volume is more important than the prices that consumers are paying.  Are consumers comfortable enough in their budgets to shell out cash?  The answer here is neither yes or no.  Retail sales up 0.1% is a break even figure with the month of May.  Recall that figure of two months ago was a big shock to most investors and mirrored the stock market performance: down.  Again, retail sales in June basically mirrored the performance of the financial markets: sideways.

I have to consider this figure to be a slight win.  The reason is that consumers are still chugging along.  Folks have not completely closed their wallets.  That makes them sensitive to any positive or negative news emanating from financial markets.  And that news ought to be mostly positive as corporate profit reports ought to be mostly positive.

Importance grade: 8; what the consumer does in the face of uncertain times absolutely will determine the direction of both the economy and financial markets in the medium-term (18-24 months).  That the U.S. consumer has been resilient in the face of bad financial market news is important.

Jason