Car sales strength masks overall weakness in retailing

As Bloomberg wryly noted, if you weren’t selling cars, July may not have been a very good month for your business.

As Bloomberg wryly noted, if you weren’t selling cars, July may not have been a very good month for your business.

“It is a bit disappointing, at least to start the quarter,” Kevin Cummins, an economist at RBS Securities Inc. in Stamford, Conn., told Bloomberg after the Commerce Department said Friday that U.S. retail sales were flat overall for the month — up 1.1 percent at car dealers, but down 0.3 percent across the rest of the retail economy.

“Labor income is the key,” Cummins added. “Confidence seems to be moving sideways.”

The unexpected result — the median forecast in a Bloomberg survey was for a 0.4 percent rise in July sales — was mitigated somewhat by the Labor Department’s report the same day that wholesale prices fell for the month. The 0.4 percent decline in the Producer Price Index was its worst performance in nearly a year, but was an indicator that inflation remains under control.

So inflation won’t be eroding consumers’ purchasing power, but do they want to spend, and do they have enough money on hand as an incentive? Pay raises remain slim, and some companies don’t expect consumer spending to grow much during the rest of the year against the backdrop of a bruising and frequently divisive presidential election campaign.

“When a consumer is a little uncertain around their future and really trying to figure out what this election cycle really means to them, they are not as apt to spend as freely as they might have even just a couple of quarters ago,” Todd Penegor, president and CEO of The Wendy’s Co., told investors, the Wall Street Journal reported.

The Journal did note a 1.3 percent gain in nonstore sales — largely online merchants, such as Amazon.com Inc., but also including catalogs, infomercials and other types of vendors — as department store sales fell 0.5 percent.

The University of Michigan’s Consumer Sentiment Index showed a slight gain in its mid-month reading — 90.4, up from 90.0 at the end of July.

“Confidence inched upward in early August due to more favorable prospects for the overall economy offsetting a small pullback in personal finances,” Richard Curtin, chief economist for the university’s Surveys of Consumers, said in a statement.

“Most of the weakness in personal finances was among younger households who cited higher expenses than anticipated, as well as somewhat smaller expected income gains. Concerns about Brexit have faded amid rising references to the outcome of the presidential election as a source of uncertainty about future economic prospects.”

This week we will get a look at the Consumer Price Index for July. The consensus forecast of economists is for a 0.2 percent increase in the core CPI, which would follow a similar increase in June.

The CPI will be released today, along with July reports on industrial production and housing starts. The latter are expected to come in at 1.16 million, down slightly from 1.19 million the previous month.

On Wednesday afternoon the Federal Reserve will release the minutes of the July 27 meeting of its rate-setting Federal Open Market Committee. Taken together, the CPI and the release of the Fed’s July deliberations will open a new window on the prospects for an interest-rate increase later in the year.

"While [the] week's economic calendar is fairly light, [the data releases] are likely to put the focus back on when/if the Fed might raise rates again," Randy Frederick, managing director of trading and derivatives at the Schwab Center for Financial Research, told TheStreet. "We continue to favor December, which currently shows a 41 percent chance, and because it comes after the elections."

The Street said three Fed regional leaders will speak this week.

Atlanta Fed President Dennis Lockhart will address the Rotary Club in Knoxville, Tenn., today, followed by a question-and-answer session; St. Louis Fed President James Bullard will speak on the economy and monetary policy on Wednesday; and San Francisco Fed President John Williams will detail his economic outlook on Thursday.

Economy watchers will be listening.


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