US Retail Sales Bolster Economy in May

US retail sales increased in May and sales for the prior month were revised up, that suggesting a pick-up in consumer spending that eased fears the economy was slowing down sharply in Q-2.

The fairly upbeat report from the Commerce Department 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 Fed will signal a rate cut later this year when the FOMC meet next week.

Financial markets have priced in 2 rate cuts this year, driven primarily by a recent escalation in the trade dispute between the United States and China, which economists warn could undercut economic growth.

Next month, the US economy will mark 10 years of expansion, the longest in history. “

“Do not count this economy out yet, the consumer is saying, as they show the way by opening their wallets and purses to spend the money that makes the economy hum,” said chief economist at MUFG in New York.

Retail sales rose 0.5% last month as households bought more motor vehicles and a variety of other goods, the government said.

Data for April was revised up to show retail sales gaining 0.3%, instead of dropping 0.2% as previously reported.

There were also increases in purchases of building materials and garden equipment, furniture, and electronics and appliances. Americans also spent more on online and mail-order purchases, hobbies, music and books, as well as at bars and restaurants, as sales at clothing stores were unchanged.

Economists polled by Reuters had forecast retail sales increasing 0.6% in May. Compared to May last year, sales advanced 3.2%.

Excluding automobiles, gasoline, building materials and food services, retail sales climbed 0.5% last month after an upwardly revised 0.4% rise in April.

These 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 about 70% of economic activity.

The outlook for consumption is dimming a bit. Not only did hiring cool in May, wage growth retreated. Concerns about the labor market have been uppermost in consumers’ minds this month.

A 2nd report on Friday showed consumer sentiment ebbed in early June, with households worried the trade fight between Washington and Beijing would hurt the economy, particularly the labor market.

MSI, the consumer sentiment survey from the University of Michigan also appeared to suggest consumers rushed to buy big-ticket household items on the tariffs list to beat anticipated price increases as a result of the duties. This suggests retail sales could remain strong in June.

The solid gains in core retail sales in April and May suggested consumer spending was gaining speed in Q-2 after braking sharply in the January-March frame. That together with a 3rd report showing a utilities-led rebound in industrial production last month prompted the Atlanta Fed to raise its Q-2 GDP growth to a 2.1% annualized rate.

Have a terrific weekend