Have American consumers returned to their expansive spending ways of the past or have families just been catching up on purchases that were postponed earlier in the year? The answer depends on the angle of your view.
Retails sales rose a seasonally adjusted 1.2 percent in May, equaling the median forecast and figures for the prior two months were revised higher, April to 0.2 percent from flat and March to 1.5 percent from 1.1 percent according to the U.S. Census Bureau today.
Buoyant autos sales led the expansion with dealers seeing their best showroom volume since 2001. Vehicles and parts purchases climbed 2 percent. Gasoline sales, aided by rising prices grew 3.7 percent. Overall, gains in retail activity were widespread with 11 of 13 Commerce Department categories scoring increases.
Excluding automobiles sales rose 1 percent, better than the 0.8 percent prediction; removing gasoline brought the increase down to 0.7 percent.
Core retail sales, also called the 'retail sales control group' that corresponds most closely to the consumer spending component in the GDP calculation by the Bureau of Economic Analysis, rose 0.7 percent in May following a revised 0.1 percent rise in April that had initially be reported as flat. Economists had forecast gain of 0.5 percent for May.
The last three months have seen a revival in consumption, that 70 percent driver of U.S economic activity. The 1 percent average growth in monthly retail sales since February was the strongest performance since February, March and April 2014 when it averaged 1.2 percent.
But when the view is lengthened the monthly numbers drop down to earth. The 0.3 percent average growth for the five months so far this year is exactly in line with historical figures. For the last six months the average is 0.2 percent and for the elapsed year to May it is also 0.2 percent.
In the almost six years since the end of the recession in June 2009, retail sales have grown an average of 0.4 percent per month. If you take a 10 year average, including the recession, the average is lower at 0.2 percent and if you use the decade before the year of the financial crash (1998-2007) the result is 0.4 percent. The monthly average for the entire data series which began in February 1992 is also 0.4 percent.
The beginning months of 2014 saw a pattern in retail sales similar to the statistics this year.
In January 2014 sales fell 1.1 percent, a decline attributed by many to the weather, followed by a resurgence in February, March and April, averaging 1.2 percent. Growth in the balance the year then declined to mediocrity, averaging just 0.1 percent for the remaining eight months. Growth in sales for the year averaged 0.3 percent a month.
The question for analysts is has the rapid expansion in retail sales since February been the start of a new and stronger consumption pattern or is it simply the displacement of sales that did not take place in December, January and February when consumption shrank for three straight months.
The total lost consumption in those three months is 3.4 percent (the difference between the 1.2 percent long term monthly average and the -2.2 percent total for December, January and February).
The total above average consumption of March, April and May, 1.7 percent (2.9 percent three month total minus the 1.2 percent average), is equal to just half missing spending of the prior three months.
There are labor market developments that could be behind a change in heart for the US consumer.
This year non-farm payrolls have averaged 217,000 and they are 255,000 over the last twelve months. But they averaged slightly more at 229,000 for the first five months of 2014, though less, 208,000 for the 12 months from June 2013 to May 2014.
Wage increase have also improved a small amount since last year. This year the monthly increase in average hourly earnings have been 0.3 percent. In the year to last month it was 0.2 percent. The same figures from 2014 are 0.2 percent from January to May and an identical 0.2 percent for the prior year.
Many commentators have hailed the last three months retail sales numbers as evidence that the long awaited consumer fueled economic recovery, the self-perpetuating virtuous circle of rising spending complementing rising employment driving US economic growth above the 2.2 percent average of the past six years, is finally here.
But is a 50,000 increase in average non-farm payrolls over the last twelve months combined with, perhaps, the cumulative effect of the plus 200,000 monthly job creation for more than two years enough to instill long term confidence and its attendant consumption in the U.S. consumer?
Is the modest 0.1 percent increase in average monthly wages this year enough to sponsor a substantially stronger bout of spending from American households?
Or will we discover, as last year, that a few months of strong sales following weakness are no more than a return to the median spending patterns of the past six years and not the harbinger of an economic upturn.
We can hope of the best while remain alert to the possibility that this too may be another of the false dawns of the last six years.
Chief Market Strategist
WorldWideMarkets Online Trading