U.S. retail sales unexpectedly fell in June as households cut back on purchases of automobiles and a range of other goods, which could raise concerns the economy was slowing again.
Tuesday’s weak retail sales report, together with signs of some softening of the labor market, could dampen expectations for an interest rate hike from the Federal Reserve this year, which most economists expect could come in September.
“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,” said Millan Mulraine, deputy chief economist at TD Securities in New York.
The Commerce Department said retail sales slipped 0.3 percent, the weakest reading since February, after May’s downwardly revised 1.0 percent increase.
Retail sales excluding automobiles, gasoline, building materials and food services dipped 0.1 percent following a 0.7 percent gain in May. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.
Economists had forecast retail sales rising 0.2 percent last month after a previously reported 1.2 percent jump in May. Core retail sales had been expected to increase 0.4 percent.
The dollar fell against the yen and the euro after the data, while prices for U.S. Treasury debt rose. U.S. stocks were trading slightly higher on better earnings from JPMorgan .
Coming on the heels of June’s disappointing employment report and sharp drop in small business confidence, the weak retail sales data suggests the economy might have lost some momentum at the end of the second quarter, having struggled at the start of the year.
The economy contracted at a 0.2 percent annual rate in the first quarter and the drop in core retail sales could see economists trim their GDP growth estimates for the April-June quarter. The second-quarter growth outlook was also dimmed by another report from the Commerce Department showing retail inventories excluding automobiles rose only 0.1 percent in May.
This component, which goes into the calculation of GDP, increased 0.5 percent in April.
“Consumers are struggling this year, probably because income has been affected by weakness in the oil industry. The odds of tightening in September just diminished a bit,” said Chris Low, chief economist at FTN Financial in New York.
Fed Chair Janet Yellen said last Friday she expected the U.S. central bank to tighten monetary policy “at some point later this year.” Yellen could offer more clues on the timing of the first interest rate increase since 2006 when she testifies before lawmakers on Wednesday and Thursday.
Retail sales last month were broadly weak, with receipts at auto dealerships falling 1.1 percent after rising 1.8 percent in May. Clothing stores sales dropped 1.5 percent, the largest decline since September 2014.
Receipts at building material and garden equipment stores fell 1.3 percent and sales at furniture stores declined 1.6 percent, the biggest drop since January last year.
There were also declines in sales at online stores and at restaurants and bars. Rising gasoline prices supported sales at service stations, where receipts rose 0.8 percent.
Sales at electronics and appliance stores rose 1.0 percent, the biggest rise since September.
A separate report from the Labor Department showed the lingering effects of a strong dollar continuing to suppress imported inflation pressures. Import prices dipped 0.1 percent in June after increasing 1.2 percent in May.
Import prices have now declined in 11 of the last 12 months.