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By Wells Fargo Research

Retail sales fell slightly more than expected in June, with overall sales declining 0.5% and sales excluding motor vehicles declining 0.1%. The weakness was not totally unexpected as several weekly sales measures have been posting declines for much of the past two months and consumer confidence and buying plans both fell sharply in June. The loss of momentum is most apparent in the three-month rate of growth, which has slowed to a 4.1% pace for overall sales and just a 2.7% pace for sales excluding motor vehicles.

Sales at motor vehicle dealers fell 2.3% following a 0.6% drop in May. The major motor vehicle manufacturers recently announced they would keep assembly plants operating throughout the summer, as sales were reported to be robust and inventories were reported to be in line with demand or possibly even a bit tight. This morning’s sales figures cast some doubt on these predictions and raise the possibility that we may see an unintended build in inventories this summer that requires more extensive sales incentives or production cutbacks to clear out inventory.

The one big gainer for the month was electronics stores, where sales jumped 1.3 percent, following a 0.9 percent jump in May. The increases likely reflect the introduction of a number of new smartphones, most notably the newest iPhone, which debuted in June.