Retail sales disappoint in June. Is the payroll tax pinch finally here?

Retail sales increased for the third straight month in June, but fell well short of expectations. The retail sales report might hint that consumers are feeling the delayed effects of January's payroll tax hike, according to some analysts. 

|
Patrick Semansky/AP/File
Baltimore's Harbor East shopping district is reflected in a retail store's window display in April. Retail sales increased but missed expectations in June, with some analysts suggesting that US consumers finally may be feeling the pinch of January's tax hikes.

June’s retail sales report was a mixed bag, with one key category shining, one taking a huge step backward, and missed expectations in between.

Retail sales rose 0.4 percent last month, short of the 0.8 percent rise analysts expected. May’s gains were also revised downward, from a 0.6 percent gain to a 0.5 percent gain. June was the third month in a row for retail sales growth.

The gains were largely driven by a stellar month for auto sales, which grew 1.8 percent (after increasing by 1.4 percent in May). Gas prices also played a role – gasoline sales were up 0.7 percent, “likely reflecting the effect of higher prices,” Barclays Research economist Peter Newland wrote in an e-mailed analysis.

Otherwise, the data was a bit of a downer. Core sales, a figure that excludes autos, gas, and building materials to align most closely with routine consumer spending, inched up 0.1 percent. Some economists suggest that this could mean the expiration of the payroll tax cut in back in January is finally having an effect on shoppers’ wallets. “The components of the report provided evidence of a household sector responding with some delay to the hike in tax rates at the start of the year,” Newland wrote. “For example, department store sales declined for the fifth consecutive month in June [by 1 percent], and restaurant sales were down 0.6 percent in May and a further 1.2 percent in June.”

Building materials, meanwhile, dropped by 2.2 percent despite a spate of strong data from the housing market over the past few months (including good numbers for pickup trucks, which tend to correlate with construction activity). It was the category’s weakest reading in over a year.

Time will tell whether the decline is a blip in the housing recovery or one sign of a further slowdown. The National Association of Home Builders' (NAHB) Housing Market Index’s latest read of homebuilder confidence comes out Tuesday, and June housing starts come out Wednesday. Last month, the NAHB reported a shortage of key building materials including lumber, suggesting that such shortages may be holding back the market from growing more quickly.

But things aren’t all gloomy: June marked the third positive month in a row for retail sales, and coupled with a better than expected June jobs report, it’s still (slow) progress.

“Our forecast for some time has been that real consumer spending growth will remain on roughly a 2% trend, and we see no compelling reason to alter this,” HIS Global Insight economist Joshua Shapiro wrote in an e-mailed analysis. “Today’s retail sales report, which was disappointing relative to market expectations, is, however, consistent with the slow-growth consumer spending environment that we are forecasting.”

You've read  of  free articles. Subscribe to continue.
Real news can be honest, hopeful, credible, constructive.
What is the Monitor difference? Tackling the tough headlines – with humanity. Listening to sources – with respect. Seeing the story that others are missing by reporting what so often gets overlooked: the values that connect us. That’s Monitor reporting – news that changes how you see the world.

Dear Reader,

About a year ago, I happened upon this statement about the Monitor in the Harvard Business Review – under the charming heading of “do things that don’t interest you”:

“Many things that end up” being meaningful, writes social scientist Joseph Grenny, “have come from conference workshops, articles, or online videos that began as a chore and ended with an insight. My work in Kenya, for example, was heavily influenced by a Christian Science Monitor article I had forced myself to read 10 years earlier. Sometimes, we call things ‘boring’ simply because they lie outside the box we are currently in.”

If you were to come up with a punchline to a joke about the Monitor, that would probably be it. We’re seen as being global, fair, insightful, and perhaps a bit too earnest. We’re the bran muffin of journalism.

But you know what? We change lives. And I’m going to argue that we change lives precisely because we force open that too-small box that most human beings think they live in.

The Monitor is a peculiar little publication that’s hard for the world to figure out. We’re run by a church, but we’re not only for church members and we’re not about converting people. We’re known as being fair even as the world becomes as polarized as at any time since the newspaper’s founding in 1908.

We have a mission beyond circulation, we want to bridge divides. We’re about kicking down the door of thought everywhere and saying, “You are bigger and more capable than you realize. And we can prove it.”

If you’re looking for bran muffin journalism, you can subscribe to the Monitor for $15. You’ll get the Monitor Weekly magazine, the Monitor Daily email, and unlimited access to CSMonitor.com.

QR Code to Retail sales disappoint in June. Is the payroll tax pinch finally here?
Read this article in
https://www.csmonitor.com/Business/new-economy/2013/0715/Retail-sales-disappoint-in-June.-Is-the-payroll-tax-pinch-finally-here
QR Code to Subscription page
Start your subscription today
https://www.csmonitor.com/subscribe