June was a weak month for retail. Overall sales increased by a shallow 0.2 per cent, which is the worst pace of growth since the start of the year. Core retail – which excludes gasoline, autos and foodservice – rose by 0.4 per cent, which is the weakest rate of expansion since April of last year.

Once inflation is accounted for, core retail sales volumes shrunk by 0.9 per cent – a significant deterioration since last month’s 1.7 per cent volume growth.

Given that last year’s growth rate was modest, there is no excuse of tough comparatives to hide behind. The numbers are solely down to consumers spending more conservatively. Part of this is because, aside from Juneteenth, which is still not completely established, there is no major holiday in June. These banner holidays and events, such as Memorial Day, have become increasingly important drivers of retail spending. They provide consumers with an excuse to splash out and for retailers to offer bargains and deals. Without this impetus, June was a very flat month and provided consumers with an excuse to take a pause.

It is also the case that the number of tax refunds starts to dry up in June, so the injection of money into the consumer economy is less helpful than in the earlier months of the year. This likely knocked almost a percentage point or so off growth compared to the prior month; and the impact was bigger this year than last as consumer finances are so much tighter.

The crumb of comfort is that, despite all the economic pressures and challenges, overall spending remained positive. Compared to the same period in 2019, spending is 35.8 per cent higher which, even with inflation, is exceptional growth over a relatively short period of time. The question, of course, is whether the current slowdown is the start of a trend or an early signal that retail is about to enter a recession, or whether it is simply a blip.

While we think a recession is too harsh a projection at this stage, we also believe that the consumer is extremely skittish, and this will lead to choppy trading numbers that fluctuate from month to month. However, when things are evened out, this should remain a reasonable year for the retail sector.

On a sector basis, the bigger ticket categories continue to lead in terms of declines. Sales at furniture and home stores fell by 6.4 per cent, while at home improvement stores revenue dropped by 5.7 per cent. Waning confidence in making big purchases continues to act as a drag on these segments, but so too does the sluggish housing market. This continued softness, plus the weaker overall numbers, should send a clear signal that it is time to start considering a modest rate cut. In our view, the housing market needs an injection of energy to revitalize big ticket spending.

At apparel stores, sales rose by 3.8 per cent or by 2.8 per cent in volume terms. Some very early activity in back-to-school buying helped the sector a little, but so too did continued closet refreshes as consumers were tempted by deals and offers. Many shoppers will still commit to small indulgences, like new apparel, while shunning bigger ticket buys that they feel are unaffordable. However, it is also clear that more consumers are buying in value segments of the market while avoiding more mainstream players like department stores.

In grocery, sales and food and beverage stores increased by 1.7 per cent or by 0.5 per cent in volume terms. Value seeking behavior continues to dominate as many lower- and middle-income households try to reduce their food expenditure by trading down and cutting out impulse buys. However, that the sector is still producing some growth suggests that the bulk of consumers, while pressured, are not in dire straits.

Overall, we remain comfortable about the state of retail. However, even as inflation moderates, the consumer needs to be chivvied along and given excuses and reasons to spend. Without this, growth moderates. Still, with some banner periods – including back to school – ahead of us, retailers have the opportunity to generate some reasonable numbers.

• Neil Saunders is MD of GlobalData.