MNI REALITY CHECK: June Sales Seen Slower as Spending Cools

The pace of U.S. retail sales slowed in June as spending cooled after a stimulus-fueled spike in the spring, industry experts told MNI, though spending was still abundant as consumers were still unlikely to be deterred by higher prices for goods.

Overall sales growth "remains on solid footing," said Jack Kleinhenz, chief economist at the National Retail Federation, though the pace "is perhaps slowing."

Still, business and consumer optimism was elevated through June, he said, and total sales are likely to get a slight boost from 'Amazon Prime Day' event, which took place from June 21 - 23.

Kleinhenz noted that spending through June likely shifted further toward services from goods as business reopenings and consumer mobility increased. That could make official retail sales numbers appear slightly weaker.

PRICES

Consumers aren't likely to be deterred by higher prices because they're still "flushed with cash," from federal relief and tax returns, Kleinhenz said. June CPI rose at the fastest pace since 2008, the Bureau of Labor Statistics reported Tuesday, rising 5.4% from a year earlier.

"Consumers are going to be able to pay higher prices" for goods and services, said Gary Raines, chief economist at the Footwear Distributors and Retailers of America, a trade association representing more than 90% of the U.S. footwear industry. That's good news for apparel retailers, he said, forecasting apparel prices should continue to grow through the second half of the year.

Raines added that sentiment among footwear retailers through the month was "fairly upbeat," and sales should still see "robust" year-over-year growth; just less so from months prior as spending decelerates somewhat.

"The numbers are going to be strong," he said of June sales. "Just not as strong as the last couple of months."

Apparel sales in June could also get a lift from early back-to-school shopping, Raines said, though the bulk of that will take place in the latter half of the summer.

VEHICLE SALES

Meanwhile, vehicle sales dropped "significantly" in June as inventory continued to fall short of demand, Charlie Chesbrough, senior economist at Cox Automotive, told MNI. Volumes plummeted to a seasonally adjusted annual rate of 15.4 million following May's 17 million pace, he said, citing data from Cox.

"We can only point to the shortage of inventory as the main contributing cause," Chesbrough said, as "demand remains quite strong."

Chesbrough added that inventory shortages are also causing new and used vehicle prices to spike. Used vehicle prices rose 10.5% in June, accounting for more than a third of the overall increase in June CPI. Prices were up more than 45% from a year earlier.

But most consumers don't seem to mind shelling out for a car, he said, and demand for new and used vehicles remains elevated, pushing prices up even further.

Headline retail sales are expected to fall 0.4% after May's 1.3% decline, according to Bloomberg. Excluding vehicle sales, retail sales should increase 0.4% after falling 0.7% in May, while sales excluding vehicles and gas station sales should increase 0.6%.