Consumers Missing in Action Reappear in May
- May Retail Sales surged by 1.2 percent as auto sales increased by 2.0 percent.
- Ex-auto Retail Sales increased by a strong 1.0 percent.
- Business Inventories for April increased by a moderate 0.4 percent.
- Initial Claims for Unemployment Insurance gained 2,000 for the week ending June 6, to hit 279,000.
Retail sales bounced back after three consecutive monthly declines from last December through February. March sales gained a strong 1.5 percent. April was more moderate at a 0.2 percent increase, and in the latest numbers from May, we see another strong gain of 1.2 percent. May retail sales were fortified by the surge in unit auto sales to a 17.8 million unit annual rate. Retail (dollar) sales of autos and parts climbed 2.0 percent in May. Other sales categories were strong for the month, confirming the reappearance of the America consumer who was missing in action over the winter months. Gasoline stations sales gained 3.7 percent as prices firmed up. Crude oil, near $60 per barrel, brought national average gasoline prices up 23 cents to $2.68 per gallon in May. Building material sales were also strong in May, up 2.1 percent. Clothing store sales increased by 1.5 percent. May’s rebound in retail sales fits two stories. The first story is the spend-out of pent-up demand after the unusually bad winter weather. Second, is the possibility that consumers are adjusting to new patterns in their healthcare spending which may be an increasing drag on discretionary spending early in the year. Solid nominal gains in retail sales, with tame inflation numbers suggest that real consumer spending will be a support to Q2 real GDP growth. We expect Q2 real GDP growth to rebound to about 2.8 percent after falling at a -0.7 percent rate in Q1.
April business inventories increased by 0.4 percent, also supportive of Q2 GDP. Retailers accounted for the bulk of the inventory gains. The total business inventories-to-sales ratio remains elevated at 1.36, stepping up from about 1.25 in 2011. The gain in the inventory-to-sales ratio is usually not a good sign. However, there may be an oil component to the story which is not visible in the monthly business inventories report.
Initial claims for unemployment insurance increased inconsequentially, by 2,000, to hit 279,000 for the week ending June 6. This is still a very good number, consistent with ongoing tightening in the U.S. labor market. Continuing claims for the week ending May 30 increased by 61,000, to reach 2,265,000, also a very good number.
Market Reaction: Equity markets opened with gains. The 10-year Treasury yield is down to 2.43 percent. NYMEX crude oil is down to $60.47/barrel. Natural gas futures are down to $2.86/mmbtu.
For a PDF version of this Comerica Economic Alert click here: Retail Sales 06-11-15.