Kiplinger Retail Outlook: Consumers Came Back in June

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Core retail sales (which exclude gas, autos and restaurants) rebounded in June, rising 0.6%, after little change in April and May, showing that consumers have not been sidelined yet. Sales rose across most categories, except for furniture, home goods and electronics. Miscellaneous store sales were especially strong, rising 1.8% after a 3.6% jump in May. Motor vehicle sales partially rebounded from their May drop, which is surprising, given that sales were at very high levels in March and April as consumers sought to buy ahead of tariff-related price increases. Perhaps auto dealers are still offering pre-tariff inventory.

Restaurant sales resumed their upward trend, rising 0.6% in June after a small decline in May. Spending on eating out is an important signal as to whether consumers feel flush or constrained. Spending on services excluding dining rose a modest 0.2% in May, the same as in April. That is the slowest growth in nearly two years, but this spending likely picked up in June, along with the rise in overall consumer sentiment. (May is the latest month for which services spending data other than dining are available. Data for other services in June will be published at the end of July.)

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Price increases caused by tariffs are starting to show up among home furnishings and other imported goods in the Consumer Price Index, and a slowdown in some purchases may show up later. Price increases could become more prevalent, as inventories of goods that were stockpiled ahead of the tariffs start to run down.

Consumer sentiment improved in June as the economy appeared to stabilize, but it remains low because of the uncertainties regarding the White House’s tariff policy and prospects for the overall economy. Spending will also be affected by flattening income growth later this year because of the slowdown in hiring taking place now.

Finally, even if the unemployment rate does not rise much, just the fear of job losses will likely boost the household savings rate from its current 4.5%. More saving means less spending on current consumption: a prudent move for individual consumers during times of uncertainty, but a headwind for the overall economy.

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