Retail sales rise more than expected in May

Any month now, we keep hearing, consumers’ pocketbooks and outlooks will start to feel the pinch of the sweeping federal budget cuts, known as the sequester. It’s not a matter of “if,” economists say, it’s a matter of “when.”

“When,” was not last month. US consumers are still spending money, and they’re optimistic about the direction the economy is going. 

Retail sales rose 0.6 percent in May and 4.3 percent from a year ago, beating analysts’ expectations of 0.5 percent growth. It was retail sales’ biggest jump in three months and points to potential economic growth for the year going forward. In April, there was only a 0.1 percent growth in sales.

Barclay’s Research revised its growth forecast for second quarter gross domestic product up a substantial 0.7 percentage points to 1.8 percent on the news.

“The May retail sales report struck a strong tone,” Barclays Research economist Peter Newland wrote in an e-mailed analysis. “While the trend in core sales has eased in recent months, it has remained more robust than we had anticipated.”

May’s numbers were buoyed by big gains in auto sales, which jumped 1.8 percent. Other spending categories that saw gains included building materials (up 0.9 percent), food and beverage (up 0.7 percent), health and personal care (up 0.2 percent), sporting goods stores (up 0.6 percent), general merchandise (up 0.5 percent), nonstore retailers (up 0.7 percent), and miscellaneous retailers (up 1.2 percent). 

Consumers largely stayed away from big-ticket discretionary purchases, including electronics, furniture, and department store wares. Sales of gasoline also fell slightly, 0.2 percent. 

Excluding autos, retail sales only rose 0.3 percent. That number, which came in slightly below forecasts, could stoke fears of a spending slowdown. But for the most part, analysts say, consumers are gaining confidence from an improving jobs picture, a rallying stock market, and the housing comeback.

The Consumer Confidence Index reached its highest level in over five years in May, and the University of Michigan's Consumer Sentiment Index hit its highest level since July 2007. 

“Consumers have been gaining confidence. The outlook on labor market conditions has improved and consumers are considerably more optimistic in their economic outlook,” Leslie Levesque, senior economist for IHS Global Insight, wrote in an e-mailed analysis. “There are several positives on the consumer front: inflation is low, gasoline prices have been accommodative, the housing market is looking brighter and the stock market is strong. Looking ahead, we expect real consumer spending growth in the 2.0 percent-2.5 percent range for the year.”