Retail Sales Rise More Than Expected

Consumer spending proved to be the biggest surprise of April and is at least a pleasant surprise in May. Retail sales rose a very solid and better-than-expected 0.5 percent with strength evident, though to a less degree than in April, through the balance of the report. Auto sales did give a boost to total sales but sales ex-auto, up 0.4 percent, were nearly as solid. Gasoline, reflecting higher prices, once again gave an outsized boost to sales though the gain for sales excluding autos and gas is respectable at plus 0.3 percent. The gain excluding gas alone also came in at 0.3 percent.

Year-on-year rates, however, moderated several tenths in May and are at very soft levels. Total year-on-year sales are up only 2.5 percent with ex-auto ex-gas at plus 4.1 percent and ex-gas alone at plus 3.7 percent.

Building materials have been very weak, down a steep 1.8 percent for the third straight monthly decline and pointing to moderation in residential investment. General merchandise was also down in the month as were sales at department stores.

The strength in the report is centered once again in nonstore retailers where sales, reflecting big gains for ecommerce, rose 1.3 percent on top of the prior month's 2.5 percent surge. Year-on-year, nonstore retailers lead the way with at 12.2 percent pace. Restaurants, a key discretionary category, continue to show strength with an 8 tenths gain on the month and a year-on-year rate of 6.5 percent.

Strength is definitely the theme of this report, one that ultimately reflects strength in the labor market and which is pointing squarely to another strong month for total consumer spending in May. The outlook for the second quarter just got an upgrade and will keep alive chances for a rate hike at the July FOMC.

Recent History Of This Indicator:
Retail sales surged in April and first signaled what turned out to be strong overall results for the month's total data on consumer spending. The signal from May retail sales, however, is expected to less robust. Unit auto sales in May, though at a solid level, were flat compared to April though gasoline sales are certain to get a boost from another monthly climb in prices. The consensus gain for the overall headline is 0.3 percent with ex-auto sales at plus 0.4 percent. Core results, that is ex-auto ex-gas sales, have been very solid this year and a 0.3 percent gain is expected for May. Nonstore retailers, reflecting ecommerce sales, have been very strong this year as have sales at furniture stores and health & personal care stores.