US retail sales dip, services sector rises

Heightened economic and political uncertainty weighed on confidence in June, a survey showed.

US retail sales fell in June despite demand for summer merchandise.

US retail sales fell slightly more than expected in June, although service sector activity rose in the same month, two surveys showed.

Retail sales dropped 0.9 per cent in June compared with the prior month, compared with expectations of a 0.8 per cent fall. But sales were up 0.7 per cent when compared with the prior-year period, the Johnson Redbook Sales Index showed.

Redbook noted the sales performance included the run up to Independence Day. Hot weather and sales promotions spurred demand for summer merchandise, Redbook said.

Looking ahead, Redbook said July is typically a low-volume period as sales are driven by promotions as stores clear out summer goods and restock for the fall.

For July, Redbook’s preliminary year-over-year target is 0.5 per cent growth.

Elsewhere, Markit Economics’ services purchasing managers index registered at 51.4 last month, little changed from the 51.3 preliminary reading and May print. The 50 mark separates expansion from contraction.

Economists surveyed by The Wall Street Journal expected the index to rise to 52.0.

Despite the rise in activity, heightened economic and political uncertainty hurt business confidence and led to a continued slowdown in job creation by the nation’s shops, restaurants and other service providers.

The US service sector is home to most American jobs and it has been offsetting a much weaker, though smaller, manufacturing sector. While service providers continue to report business growth, the rate of expansion has been slowing as uncertainty over the economy and the 2016 election has given some consumers and businesses pause.

Markit’s June report is the latest sign that the pick-up in momentum at the start of the second quarter may be dented by waning confidence. According to Markit, survey respondents reported the fastest pace of new business since the start of the year, but they also reported subdued business confidence. Service providers in June expressed the lowest level of optimism since the survey began in October 2009.

“Service sector confidence has slumped to the lowest since 2009 alongside ongoing woes in the energy and manufacturing sectors, as well as worries about the outlook amid presidential election uncertainty,” said Chris Williamson, Markit’s chief economist.

As confidence waned, service providers continued to cut back on hiring for the third month running. Job creation in the sector last month fell to a 17-month low, according to Markit.

A separate snapshot Wednesday of the service sector’s health painted a brighter picture. The Institute for Supply Management’s gauge rose to 56.5, up from 52.9 in May and above the 53.6 economists expected. That survey’s employment subindex rose to 52.7 in June from 49.7 a month earlier.

With Lisa Beilfuss

Dow Jones