Are reports of consumer vigor exaggerated?

Investors are well aware that the American consumer contributes about 70% to the U.S. GDP topline. So consumer data — from retail sales to consumer prices, from expenditures to the saving rate — all get the market's attention.

The consensus, based on this data, is that the consumer's all right.

But Carl Weinberg, chief economist at High Frequency Economics, suggests that the retail sales story is overstated.

Last week's 0.2% monthly retail sales increase, stacked against a monthly decline in CPI, hinted at strong consumer spending in Q2 and prompted the Atlanta Fed to boost its Q2 GDP estimate to 1.7% from 1.4% at a quarterly annualized rate.

But Weinberg points out the retail sales report's easy comparison to a generally weak Q1, before dismantling the logic of using CPI as a retail sales deflator.

Since CPI measures the prices of a basket of goods between two fixed time periods, the data "yields inaccurate results in times of big price changes," Weinberg writes. "If the price of gasoline doubles, you will buy less of it, so the impact of the increase in gas prices has a reduced weight in current expenditures."

Also since services account for about 65% of items included in consumer expenditures, and shelter's slice of that pie is about 53%, the retail sales report is really focused on about one-third of actual consumer spending, the note says.

"We will not know the full details of consumer expenditures until July 30, when the June personal income and spending report is published," Weinberg adds.

HFE believes services spending and spending volumes decreased, and that "consumers have been supporting real and nominal spending levels by saving less."

"Obviously, savings cannot be reduced forever," Weinberg says.