U.S. consumers are showing an unexpected reluctance to open their wallets, raising doubts about the prospect for vigorous growth in the economy during the second half of the year.
The Commerce Department reported Wednesday that retail and food-service sales stalled in July, as shoppers stayed away from department stores and car lots.
The challenges ahead for retailers were underlined by a warning from Macy's Inc. The big U.S. department store operator, which also owns upscale Bloomingdale's, said that full-year sales growth for comparable stores would fall well short of expectations, rising only 1.5 to 2 per cent.
The underwhelming bulletins from the retail front surprised many analysts. They had assumed that falling claims for unemployment, steady job gains and lower gas prices would encourage U.S. consumers to spend more freely.
Instead, the lacklustre news adds to concerns that slow wage gains aren't giving shoppers much reason to splurge. If consumer demand fails to expand, it's difficult to see how the economy as a whole can pick up much speed.
"What does all this mean? It means that we could see downward pressure on the already reported [second-quarter] real GDP number of 4 per cent and there is downside risk to our [third-quarter] growth estimate of 2.9 per cent," wrote Jennifer Lee, senior economist at Bank of Montreal, in a note.
Of course, it's possible that the numbers reported Wednesday will be revised higher, but Scotiabank economists Derek Holt and Dov Zigler pointed out that "the trend in retail sales has not been your friend." After spiking in March, retail sales growth has steadily declined ever since. "Momentum, at least in the retail sector, looks to have waned," they wrote.
The most obvious reason for the dwindling momentum is stagnant wages. While U.S. unemployment has fallen over the past year, paycheques have failed to enjoy much of a bump. The Bureau of Labor Statistic's Employment Cost Index shows that wages and salaries for private-sector workers are up only about 2 per cent over the past year.
Department stores have felt the pain intensely. With most shoppers trying to stretch their dollars, the appetite for new furniture and appliances has been weak, despite what would appear to be an improving job market.
In announcing Macy's revised outlook, CEO Terry Lundgren noted that "many customers still are not feeling comfortable about spending more in an uncertain economic environment."
Meanwhile, Amazon and other Internet retailers are making it easy for people to find exactly what they want, at a highly competitive price, then have the goods shipped to their homes. Department stores once prided themselves on offering a huge array of merchandise, but that's no longer much of a selling point in an age of online shopping.
Macy's downbeat forecast for the remainder of the year sparked a wave of selling by investors, sending its share price down 5.5 per cent on Wednesday. Stocks of other department store retailers followed suit, with both Nordstrom Inc. and JCPenney Co. Inc. losing about 1 per cent.
The world's largest retailer, Wal-Mart Stores Inc., is slated to report its latest quarterly earnings on Thursday. Several analysts have downgraded the stock in recent months and the share price has slid 6 per cent since the start of the year. If it, too, offers a disappointing outlook, prepare for more losses ahead.