US retail sales rise solidly in May

Reuters . Washington | Published: 00:20, Jun 15,2019

 
 

A file photo shows the inside of the Gadsden Mall is pictured in Gadsden, Alabama, US, December 10, 2017. — Reuters photo

US retail sales increased in May and sales for the prior month were revised higher, suggesting a pick-up in consumer spending that could ease fears the economy was slowing down sharply in the second quarter.

The fairly upbeat report from the Commerce Department on Friday followed a raft of weak data, including a step-down in hiring in May and tame inflation readings, that have led economists to believe that the Federal Reserve will signal a rate cut later this year when policymakers meet next week.

Financial markets have priced in two rate cuts this year, driven primarily by a recent escalation in the trade war between the United States and China, which economists have warned could undercut economic growth. The economy will next month celebrate 10 year of expansion, the longest in history.

‘Although it won’t change the view that the Fed will feel compelled to ease at some point this year, this eases some of the pressure,’ said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto. ‘And it is likely welcomed.’

The Commerce Department said retail sales rose 0.5 per cent last month as households bought more motor vehicles and a variety of other goods. Data for April was revised up to show retail sales gaining 0.3 per cent, instead of dropping 0.2 per cent as previously reported.

Economists polled by Reuters had forecast retail sales climbing 0.6 per cent in May. Compared to May last year, retail sales increased 3.2 per cent.

Excluding automobiles, gasoline, building materials and food services, retail sales advanced 0.5 per cent last month after an upwardly revised 0.4 per cent rise in April. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.

They were previously reported to have been unchanged in April. Consumer spending accounts for more than two-thirds of economic activity.

The dollar rose to a session high against a basket of currencies following the report, while US Treasury prices fell. US stock index futures pared losses.

The solid gains in core retail sales in April and May suggested consumer spending was gaining speed in the second quarter after braking sharply in the January-March quarter.

That could see economists raising their second-quarter GDP growth estimates, which are currently below a 2.0 per cent annualised rate. The economy grew at a 3.1 per cent pace in the January-March quarter after getting a temporary boost from exports and an accumulation of inventory.

Exports dropped in April and inventory investment is slowing. In addition, manufacturing production and home sales fell in April. The outlook for consumer spending is mixed. While consumer confidence remains strong, wage growth retreated in May and hiring moderated sharply.

Overall, the economy is losing steam as the stimulus from last year’s $1.5 trillion tax cut and increased government spending dissipates. The trade war between the United States and China, which escalated recently, is also hurting the economy.

Last month, sales at auto dealerships accelerated 0.7 per cent after dropping 0.5 per cent in April. Receipts at service stations rose 0.3 per cent.

Building materials and garden equipment sales edged up 0.1 per cent, while online and mail-order purchases jumped 1.4 per cent.

Sales at clothing stores were unchanged and receipts at furniture outlets nudged up 0.1 per cent. Sales at bars and restaurants increased 0.7 per cent last month, while those at hobby, musical instrument and book stores rose 1.1 per cent.

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