Retail Sales: Not Good
There is nothing worse than heading off for your summer holidays underneath cloudy rain-filled skies. Your spirits sag just as much as your damp clothes do. Why the meteorological reference? Retail sales for June were decidedly wet.
The major retailers report sales on a monthly basis and so we can get a reasonable look at economic activity by comparing what they call ‘same store sales’ with previous months.
The news is very poor.
Most of the big chains reported declines, some reversing what had been signs of modest improvements. Many of the national retailers complained that the bad weather throughout the Northeast hampered their ability to move summer merchandise ahead of consumer’s vacations. I have a feeling that they are resorting to this excuse in lieu of admitting that sales are simply poor due to underlying economic conditions.
Clearly poor weather takes its toll. It is one of those realities that we all overlook, but good weather is a major factor in the economy! Plenty of sun and consumers feel better about getting out and spending money. This is particularly true of the mid-year vacation period. People tend to buy vacation oriented stuff at the last minute, so inclement weather can delay or even eliminate vacation impulse purchases.
This year, of course, the bad weather simply added to an already rotten outlook: unemployment is still rising, wages are flat or falling, debts need to be paid off, and cash needs to be saved for more important things later in the year. So the bad news from retailers can come as no surprise.
More to the point it already looks as if July will see no improvement. The problem that retailers will start to run into is their need to clear summer inventories in order to make room for ‘back to school’ and Fall goods. So they will have to offer steeper discounts than normal and run even more sales.
From an overall economic outlook perspective the continued difficulties faced by retailers helps us fill out our forecast for the next few months. While there have been a few signs of improvement – especially in some of the industrial indicators such as durable goods sales – the most important driver of growth, consumption, looks still stalled. There just doesn’t appear to be a significant lift in consumer attitudes and spending habits. Most likely this implies that the third quarter will repeat the pattern of the second: a marked slowing of decline, but still decline.
These retail sales reports indicate that the end of recession is still a few months away.
