Retail sales surprise as consumers buy cars in a hot housing market
By Jay Keller
New cars were top-of-mind for consumers last month as auto sales pushed retail sales ahead to 0.6%, marking a strong increase over a disappointing 0.1% increase in April.
After removing auto dealers from the equation, the Commerce Dept. reported that retailers saw a boost in sales of 0.3% in May, a margin below industry forecasts that has re-ignited a discussion about how consumer spending is slowing due to the impact of January’s tax increases.
Economists polled by Reuters had expected retail sales, which account for about 30 percent of consumer spending, to rise 0.4 percent last month.
The good news, however, lies in the fact that the increase in core sales offers hope that consumer spending won’t drop to levels seen in April but instead continue the momentum forward.
“Retail sales in the U.S. probably increased in May by the most in three months as Americans took advantage of cheap borrowing costs to purchase new cars,” according to a median forecast of 83 economists surveyed by Bloomberg ahead of Thursday’s release.
The Conference Board, an economic watchdog association working in the public interest, commented on the rise of consumer spending shortly after the retail sales report was released.
“Consumer spending is getting a boost from improving consumer confidence and a rebound in aggregate household net worth to a record level, surpassing the pre-recession peak recorded in Q3 2007.” Kathy Bostjancic, Director of Macroeconomic Analysis at The Conference Board said in a company statement on Thursday.
Bostjancic believes that weak income gains among average workers are supplemented by the rising equity and home prices, especially since average hourly wages improved very slightly in May.
“A moderate pace of spending may continue until the economy improves enough to finally start to deliver more spending power from wage growth,” Bostjancic adds. “Consumers seem to expect that this is coming.”
The report issued Thursday signals that consumer spending is holding pace at around the predicted two-percent level.