Household spending clearly lost momentum during the second quarter of 2012. The latest evidence of this can be found in the June retail sales report, which showed a third consecutive monthly decline.
One element of this report can be taken as good news; sales at gas stations declined by 1.8% last month, reflecting the roughly 40 cent per gallon drop in fuel prices seen since April. (Unfortunately, the drought and its impact on ethanol prices may limit further declines at the pump.)
But outside of this more volatile element, sales declined almost uniformly across categories. Auto sales were off by 0.6% last month, general merchandise sales fell 0.2%, and furniture was off by 0.8%. Soft sales activity has led to an increase in inventories, which rose by 0.3% for May.
Given the influence of consumer spending on GDP, this is a disappointing report. But it is consistent with the latest updates on job creation and consumer confidence. For many households, spending discipline will be the flip side of rebuilding savings lost to the house price correction and any interruption of employment. Further, the uncertainty being imported from Europe and manufactured here by the developing Presidential campaign is not helpful. We’ll have more on both of these topics in our upcoming economic outlook piece.
This will be an active week for the markets, as Fed Chairman Ben Bernanke begins two days of Congressional testimony tomorrow morning. We’ll look forward to covering his remarks in this space.