Do Weak Retail Sales Signal Slowing Growth?

The U.S economy is showing signs of strains as the Commerce Department reported that retail sales fell unexpectedly in June from household cutbacks on purchase of automobiles, food and other spending. While not a definitive measure of the reality, the Surveys of Consumers Sentiment Index had anticipated that 2015 was off to a strong start, and it also expected an index of 96.1 in June, up 6 percent from the month prior and up nearly 14 percent from the year prior.

With a 0.3 percent fall in retail sales, the Commerce Department said the market saw the lowest reading observed since February.

Sales at retail locations excluding gasoline, automobiles, food services and building materials were down 0.1 percent after a 0.7 percent hike in May. The slump in sales at such locations is said to have a direct effect on the consumer spending component of gross domestic product, Reuters reported.

After struggling with growth early this year, the fall in retail sales, softening labor market and a drop in business confidence seem to be triggering the loss of economy’s growth momentum toward the end of the second quarter.

“The underlying tone of this report suggests that the recovery is beginning to show some signs of strain. If anything it will temper, at the margin, any consideration for a September rate hike,” TD Securities Chief Economist Millan Mulraine said.

The soft retail sales led Goldman Sachs to lowers its GDP growth estimate for the second quarter by two-tenths of a percentage point to a 3 percent pace, according to Reuters.

Last Friday, Fed Chair Janet Yellen said she expected the central bank to tighten monetary policies later this year.

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