If May’s numbers are any indication, Americans finally are starting to feel good enough about their finances to start opening up their wallets again.
Buoyed by a consistently improving jobs picture, retail sales rose 1.2 percent in May, according to data released Thursday by the Commerce Department. That was a big improvement from the nearly flat 0.2 percent gain in April, and sales have risen 2.1 percent since May 2014. March retail sales were also revised upward to a 1.5 percent rise – the measure’s biggest monthly gain in five years.
The report was in line with economists’ expectations, and the pickup in spending was felt across the board. Robust auto and gasoline sales led the way with 2 percent and 3.7 percent gains, respectively. Building materials, furniture, and clothing sales also posted solid increases.
The strong result was due in small part to timing, MFR, Inc. economist Joshua Shapiro writes in an e-mailed analysis. “Weak April retail sales were at least in part due to an early Easter which probably brought activity forward into the month at the expense of April,” he says. May’s result benefitted “from bounce from April’s below-trend outcome, an early Memorial Day holiday, and a jump in auto sales.”
Still, the report, along with upward revisions for previous months, indicates that the strong job market is starting to bear fruit in the consumer economy. The economy has added an average of 240,000 jobs per month over the past 12 months, and the unemployment rate has hovered around 5.5 percent – a number considered “full employment” by many experts. But until recently, that strength had failed to translate into a solid pickup in spending. In addition to sluggishness in retail sales, consumer confidences fell to a four-month low in April, according to the Conference Board. Thursday’s release “solves some of the consumption puzzle,” writes Barclays research economist Michael Gapen in an e-mailed report.
It also hints that overall economic growth is set to rebound from a dismal first quarter of 2015, when GDP fell an estimated 0.7 percent thanks to a winter-driven slowdown in both consumer spending and housing activity. Barclays currently expects GDP to come roaring back in the second quarter, with 3.1 percent estimated growth.
That newfound strength raises the question, again, of when the Federal Reserve will finally allow interest rates to rise. A rate hike had been widely expected this month, but the dismal first quarter pushed expectations to September, or possibly later. In remarks last month, Federal Reserve chief Janet Yellen said that a hike can be expected “sometime in 2015,” but cautioned that “Even with the significant gains in the past couple of years, it is only now, six years after the recession ended, that the labor market is approaching full strength. I say ‘approaching’ because in my judgment we are not there yet.”
But combined with yet another encouraging jobs report last week, the retail sales figures were welcome news for investors. The Dow was up over 100 points in midmorning trading Thursday before settling down to a 58-point gain.