Worst June Retail Sales Performance In History, But So What

Actual, not seasonally adjusted data from the Commerce Department showed a 5.6% drop in June retail sales versus May. It was the worst June performance in the 22 year history of this data. However, the year to year growth rate remained at +4.3% which was in line with the trend of the past year. This data is not adjusted for inflation.

On an inflation and population adjusted basis, real retail sales per capita have almost recovered to the peak level reached in 2005.That’s after 5 years of recovery. Growth at the top of the income spectrum with an additional push from steadily growing foreign shopping tourism in the US has driven this growth.

Real retail sales per capita dropped by 6.2% in June versus May. Again, this was the largest June drop in the history of this data. However, the annual growth rate of +2.5% was within the range of the past 4 years, which has averaged +2.6%. Real growth of +2.6% isn’t too shabby, but again, the performance of the upper income strata of American’s and shopping tourism growth has skewed this growth upward. Most Americans, hit with declining real household income have been forced to spend less.

Interestingly, real sales growth hasn’t budged from trend since 2010, regardless of whether the Fed was pumping money into the market during the active phases of 5 years of QE, or in a pause as was the case in 2011-12. However, the Fed’s theory that printing money would drive a stock market bubble which would result in higher sales (see Bernanke’s 2010 Washington Post Oped) has apparently worked to some extent. What has not worked is that the benefits have not accrued to the majority, but only to the privileged few, mostly bankers, leveraged speculators, and corporate executives ordering their companies buy back the stock options which they issued to themselves.

The question is how long this Fed bubble induced appearance of growth can be sustained without benefiting the broader population and how long it can be sustained without the central bank directly inflating stock prices. We’ll find out, at least for a while, early in 2015 when the Fed will once again temporarily pause QE, but not end it completely. It will continue to purchase MBS, which in turn will pump at least some cash into the financial markets via Primary Dealer trading accounts.  That should provide at least a modest test.

Of course, the “real” growth rate is also actually almost certain to be severely overstated since the Federal Government deliberately understates inflation.