Retail Sales In The US Have Been A Total Head-Scratcher

Retail sales went nowhere in July.

The latest release from the Census Bureau showed that in July retail sales were flat.

Expectations were for sales to increase 0.2%.

Ian Shepherdson at Pantheon Macroeconomics said the report was "a bit disappointing." Shepherdson noted that, "Decent gains in clothing, miscellaneous and healthcare were offset by a hefty 0.5% drop in general merchandise and 0.1% dips in furniture, electronics and non-store."

Chris Rupkey, chief financial economist at Bank of Tokyo Mitsubishi, who has been a major bull on the economy in the last few months, said of the report: "Net net, it was one of the wettest June's in years, but retail sales somehow slowed further in July from 0.2% in June and 0.4% in May."

Paul Dales, senior U.S. economist at Capital Economics, said that the weakness in the July retail report is, "at odds with the recent acceleration in income growth, rises in household wealth and greater availability of credit, which all suggest that the outlook for consumption is improving."

Earlier this year, retail spending rallied after a historically brutal winter, but over the balance of this year retail spending has looked much like it has since the financial crisis.

Which is to say, kind of meh.

Second quarter earnings season, which is coming to an end, also saw a number of less than encouraging reports come from retailers, both on the high- and low-end of the consumer segment.

According to data from FactSet, of 176 retailers tracked by the firm during second quarter earnings, 49.4% of companies have reported same-store sales above expectations, while 46.8% of companies came in below estimates.

FactSet also said that recent guidance for same-store sales for the rest of this year has deteriorated "significantly" over the past two months, with just 12.7% of companies issuing positive guidance while 21.4% have given negative outlooks.

In early July, companies including Bob Evans, The Container Store, and Family Dollar - which are highly dependent on consumer spending - each reported less than stellar earnings.

Howard Levine, CEO of discount retailer Family Dollar, said at the time, "Our results continue to reflect the economic challenges facing our core customer and an intense competitive environment."

But on the other end of the consumer spectrum, a number of companies have also reported earnings that haven't impressed investors.

Designer accessories maker Kate Spade shares fell more than 25% on Tuesday after the company's outlook disappointed. Macy's shares were down more than 5% on Wednesday after the company's earnings missed expectations and Michael Kors shares fell nearly 6% in early August after its earnings report

And on Thursday morning, we get earnings from the biggest consumer bellwether in the market: Walmart. But the outlook for this report isn't great.

According to data from Bloomberg, adjusted earnings per share are expected to fall 3% from last year. Revenue is expected to grow 1.7% over last year, though the retailer has missed expectations in each of the last 8 quarters.

In the middle of second quarter earnings season, we got the first estimate on second quarter GDP, which showed the economy grew at a 4% annualized pace during the quarter. This was up from a revised 2.1% annualized decline in the first quarter.

BI's Rob Wile noted, however, that 1.66% of this growth was due to a rise in business inventories, which can potentially signal future cutbacks in production.

But like retail sales, taken as a whole since the financial crisis, GDP growth has also been inconsistent at best.

Dales still sees GDP expanding at a 3% annualized rate in the second half of the year, but said Wednesday's retail sales made "clear that spending started the third quarter slowly."

There are a number of economic factors that you can point to in efforts to explain the so-so retail spending. But when companies targeting customers at a variety of parts of the economic spectrum, looking at wage growth is particularly instructive.

Wages also haven't really done anything since the financial crisis, just barely keeping pace with inflation over that period.

Through this period, however, the S&P 500 has moved higher, recently making all-time highs.

And until it seems like the economy is growing consistently and meaningfully, optimism surrounding the economy - and the companies most highly exposed to consumers - will remain, well, kind of meh.