Mixed retail sales report

Retail sales rose 0.2% in June, after an upwardly revised 0.5% increase in May. A rebound in big ticket spending on furniture, electronics and appliances, and vehicle sales helped to buoy gains.

The rebound in vehicle sales was less than many had expected and will be short-lived. The rejection rate on vehicle loans surged in recent months; it is currently running at 14.2%, the highest of the series, which started in 2013. Rising prices, higher rates and tighter credit conditions have eroded affordability. All-cash sales have picked up but are limited in volume. Few people can afford to cut a check for a vehicle that is now averaging more than $48,000 in price.

Core retail sales, which excludes foods services, buildings materials, gasoline and vehicle sales, rose a more solid 0.6% in June, nearly double the pace of May. The pace of core retail sales, which feeds into the calculation of the real GDP data, has slowed to less than half the pace of the first quarter, which was buoyed by the largest bump in Social Security payments on record.

Gains in spending online and at clothing retailers helped offset weakness in traditional department stores and sporting goods stores. Big box discounters look like they continue to hold up much stronger than traditional department stores in June.

Spending at building materials and garden stores fell 1.2% in June after a 1.4% rise in May. The trend has been down and exacerbated by a moderation in the prices of building materials. Lumber is off its highs but is still well above pandemic levels.

Spending at gasoline stations fell despite an increase in prices. Spending at restaurants was nearly unchanged but fell after adjusting for inflation. This reflects the weakness in domestic relative to foreign travel and follows a moderation in revenge travel that we are seeing in other data.

Spending at food and beverage stores fell 0.7% in June. Spending at food and beverage stores has fallen since the start of the year. The end of supplemental SNAP benefits in March marked the first drop. Some SNAP recipients have seen their benefits drop as much $281 dollars to $23 per month. Older and disabled recipients of SNAP were hit harder than other recipients. It is unusual to see a drop in spending at grocery stores absent a recession. The blow due to enhanced work requirements will hit this fall.

Separately, headwinds to the latter part of the year are mounting. Rejection rates on non-auto credit are rising and approaching record highs, while the crimp from an end to student loan forbearance starts to hit in October.