U.S. retail sales stalled in July as discounting by merchants such as Macy’s Inc. failed to counter the effects of feeble wage growth.
Purchases were little changed, the weakest performance in six months, after a 0.2 percent advance in June, the Commerce Department said today in Washington. Gains in sales of clothing, groceries and personal-care goods were offset by declines at department, electronics and furniture stores.
Greater employment opportunities this year have yet to translate into the incomes needed to invigorate American consumers, a sign the economy will have trouble sustaining the second-quarter pickup in growth. Legions of long-term unemployed and discouraged workers are among the reasons wages aren’t picking up more quickly, giving Federal Reserve policy makers room to keep interest rates low.
“There’s no sign of momentum or enthusiasm out of the consumer right now,” said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut, who accurately forecast today’s sales figure. “Employment has picked up in recent months but you’re not seeing the growth in hours worked that would generate big increases in paychecks.”
Central bankers in the U.S. and Europe are taking worker pay and its effect on demand into account as they consider changes in monetary policy. Bank of England officials will focus on wage growth as they assess when to raise a key interest rate from its record-low 0.5 percent, Governor Mark Carney said today. Rate increases, when they begin, will be “gradual and limited,” he said.
The U.K. central bank cut its forecast after labor-market data showed wages fell an annualized 0.2 percent in the second quarter, the first decline since 2009. The bank now projects pay growth of 1.25 percent in the fourth quarter, down from an earlier estimate of 2.5 percent.
Fed officials are also focusing on the U.S. labor market in determining when to end monetary stimulus. Fed Vice Chairman Stanley Fischer said this week that the share of working-age persons in the U.S. labor force, near the lowest since 1978, is a “source of concern” because it may contribute to a slowdown in the longer-run output of the economy.
The U.S. labor market, while improving, has yet to return to full strength. While employers added more than 200,000 jobs in each of the past six months, the best performance since 1997, and job openings rose in June to the highest level in more than 13 years, there are still pockets of slack in the job market.
There were 3.16 million people unemployed for 27 weeks or more in July, compared with 1.54 million on average in the five years leading up to the last recession. A measure of underemployment -- which takes into account people working part-time who would prefer a full-time job and those who’ve stopped looking but would take a position if one were available -- rose to 12.2 percent last month. It averaged 9 percent from 2003 through 2007.
Even with increased hiring, wages are lagging behind. Inflation-adjusted average weekly earnings dropped 0.2 percent in the 12 months through June, the worst performance since October 2012, according to Labor Department data.
“If you want to see a meaningful pickup in consumer spending growth, you’re going to need to see these real wage gains,” said Guy Berger, U.S. economist at RBS Securities Inc. in Stamford, Connecticut, the most-accurate forecaster of retail sales in the last two years, according to data compiled by Bloomberg.
Macy’s, the second-largest U.S. department-store company, today posted earnings that trailed analysts’ estimates after discounts meant to lure shoppers eroded profit margins. Sales at stores open at least a year rose 3.4 percent in the quarter ended Aug. 2, missing the projection of 3.9 percent. Macy’s also cut its full-year forecast to 2 percent to 2.5 percent from a previous projection of as much as 3 percent.
Even as wages have been slow to pick up, the increase in hiring means more Americans are collecting paychecks, which will provide the wherewithal for further spending gains.
“We have stronger employment and the signs for a pickup in wage growth are mounting,” said Harm Bandholz, chief U.S. economist at UniCredit Group in New York, who accurately predicted the July sales figure. “The fundamentals for a pickup in consumer spending look very good.”
Stocks rose, rebounding from yesterday’s decline, as the sales data spurred speculation the Fed won’t be in a hurry to raise interest rates. The Standard & Poor’s 500 Index advanced 0.7 percent to 1,946.72 at the close in New York.
The median forecast of 82 economists surveyed by Bloomberg called for a 0.2 percent July gain. Estimates ranged from a decline of 0.1 percent to a 0.6 percent advance. Eight of 13 major categories showed an increase in sales.
Motor vehicle purchases cooled last month, falling 0.2 percent from June, today’s figures showed. At the same time, sales of cars and parts were up 6 percent in July from the same month in 2013, with auto dealers benefiting from pent-up demand and easy access to credit. Industry figures show auto sales are on track for their best year since 2006.
General Motors Co., Toyota Motor Corp., Ford Motor Co., Nissan Motor Co. and Chrysler Group LLC reported volume gains of 9 percent or greater in July from a year earlier, with industrywide sales up 5 percent, according to Autodata Corp. Analysts predict 16.3 million total sales for 2014.
Purchases excluding auto dealers climbed 0.1 percent, according to the Commerce Department.
Core retail sales, which exclude categories such as cars, gas stations and building materials, climbed 0.1 percent in July following a 0.5 percent increase the prior month that was smaller than previously reported. Core sales are used to calculate gross domestic product.
The world’s largest economy grew at a 4 percent annualized rate in the second quarter after contracting 2.1 percent in the first three months of the year, its worst performance since the final stages of the recession in 2009.