WASHINGTON — Consumers were cautious with their purchases in June, as sales fell at specialty stores and department stores and overall retail sales unexpectedly declined, the U.S. Commerce Department’s monthly report revealed Tuesday.
Sales at apparel and accessories stores dropped 1.5 percent on a seasonally adjusted basis to $21.1 billion in June, while sale at department stores fell 0.6 percent to $13.8 billion. General merchandise stores, a category that includes department stores and discounters, rose 0.7 percent to $56.3 billion.
“For clothing and accessories stores, the decline is the first since January and comes on the heels of 1.4 percent growth in May,” said Scott Hoyt, senior director of consumer economics at Moody’s Analytics. “While it is certainly a disappointing trend, it has been a decent year for this category so far this year, so I think we need to wait and see what happens next month…before we start to worry about it.”
Hoyt said some of the declines in the specialty store category could be attributed to a migration in sales from brick-and-mortar stores to online, which are broken out separately by the government.
“Department stores continue to bleed,” Hoyt said. “To a fair degree, it is a physical space issue. Very few are being built and some are being closed.”
Hoyt also noted that discounters, which make up a portion of the general merchandise category with department stores, have had two straight months of sales growth.
“It potentially suggest that consumers are trading down and going for a lower price point, which runs counter to our expectations,” Hoyt said. “We think the trend should be toward modestly less price sensitivity but that is conditional on an acceleration in wage growth and we have not seen much of that yet.”
Moody’s is forecasting that consumer spending will continue to grow at a healthy pace in the second half because fundamentals are improving.
“We still think the outlook is bright on consumer spending,” Hoyt said. “With the labor market continuing to tighten, some signs of faster growth in wages, wealth rising fairly rapidly and debt burdens low, the fundamentals are in place for more rapid consumer spending growth.”
Jack Kleinhenz, chief economist at the National Retail Federation said the “weaker-than-expected” June sales could stem from “the deflationary environment we’re seeing within retailer, thereby pushing down top-line sales figures for retailers.”
But Kleinhenz remained optimistic about consumer spending.
“While consumer spending continues to be erratic and varied, going forward I expect to see improvement in retail sales, supported mostly by the U.S.’s healthy labor market, improving housing markets and easier access to consumer credit,” he said. “While the weaker than expected report doesn’t match with current trends, there’s no reason to believe this is a continuing problem. Heading into the back-to-school seasons and through the remainder of the year, consumers should find the appetite to spend.”
In the overall economy, retail sales fell 0.3 percent to $442 billion, coming in below economists’ expectations.
The losses were broad-based, ranging from the 1.5 percent decline in apparel and accessories stores sales, to 1.3 percent decline in building material sales and a 1.1 percent decline in auto sales, according to IHS Global Insight.
“Consumers stayed away from shopping malls and restaurants in June,” said Chris Christopher, Jr., director of U.S. and global consumer economics at IHS. “The retail sales figures are pointing to a consumer that spends their paycheck in fits and starts.”
IHS is lowering its second-quarter real consumer spending growth forecast to 2.4 percent from 2.9 percent, because retail sales in June were “weaker than expected,” Christopher said.
“This is not a good report. Consumers are still cautious despite modest price inflation, relatively well received employment reports, and elevated levels of consumer confidence,” he added. “The May and June retail sales figures taken together reveal modest American consumer spending patterns.”