Retails sales were higher than anticipated in May largely on rising gasoline prices but the long term trend slipped indicating that consumers remain uncertain about the prospects for the economy.
Purchases rose 0.5 percent following April’s outsize 1.3 percent gain, the best in 14 months, reported the Commerce Department in Washington D.C. today. Economists had forecast a 0.3 percent increase.
Sales without automobiles and gasoline purchases rose 0.3 percent as expected. Automobile prices were largely unchanged in the month but the price of a gallon of regular gasoline jumped 4.7 percent, from $2.22 on May 1st to $2.32 on the 31st. This accounted for most of the unexpected strength in the headline statistic. Fuel cost have continued higher, on June 10th a gallon was $2.38.
Consumers have not used the extra cash generated by the decline in energy costs since the summer of 2014 to increase spending. In June 2014 the price of a gallon of regular gasoline had averaged $3.37.
Contrary to the expectation of most economists and the Federal Reserve, consumption has only gone up marginally while the saving rate as a percent of disposable income has climbed from a low of 4.3 percent in December 2013 to a high of 5.9 percent in March of this year. It fell to 5.4 percent in April.
Probably the most closely monitored statistic of the retail sales release is the ‘retail sales control group’. This is the consumption classification that goes into the calculation of gross national product. More commonly called 'core retail sales’, it gained 0.4 percent in May, slightly better than the 0.3 percent prediction. April’s result was revised up to 1.0 percent from 0.9 percent.
The 0.7 percent average increase n core sales for the two months of the second quarter is more than twice the 0.3 percent average in the first three months of the year. It is one of the reasons the Atlanta Fed's GDPNow estimate for the second quarter is running at 2.8 percent, far ahead of the first quarter’s 0.8 percent pace.
Annual retail sales were a modest 2.5 percent higher in May and less than April’s 3.0 percent increase. Sales excluding automobiles and gas stations fell to 4.1 percent over the past year, down from April’s 4.4 percent paces. The improvement in core retail sales over the last year slipped to 3.5 percent from 3.8 percent in April.
Since the beginning of 2015 twelve month retail sales have average a 2.4 percent monthly gain. That is less than half the 5.0 percent average of the prior four years. A similar though smaller deceleration in consumption shows in the 'control group'. From January 2015 to last month the monthly annual gain was 3.3 percent. In the four previous years the average annual increase was 3.9 percent.
Demand rose in nine of the thirteen major retail categories tracked by the Commerce Department. On-line shopping, non-store retailers to the government, jumped 1.3 percent. Automobile purchases rose 0.5 percent following a strong 3.1 percent gain in April. Sales rose 0.8 percent at clothing outlets and 1.3 percent at sporting goods stores.
Economists have long been predicting a consumer led rebound to propel the economy above 3.0 annual growth. They have been continually disappointed as households have chosen to conserve their resources rather than spending despite the improvement in average hourly earnings in the past year.
In the twelve months to May average hourly earnings averaged 2.4 percent growth. That is a substantial improvement from the 2.0 percent average from 2011 through 2014.
Consumers may be waiting to see if their wage gains are sustained. Or they may remember the 3 percent and more annual gains in the years before the financial crash and recession and their reluctance is more permanent.
Chief Market Strategist
WorldWideMarkets Online Trading