By guest author Greg Robb, Senior Economics Reporter of Market Watch
Worries of economy weakening fade as retail sales now up three months in a row
The numbers: Reports of the death of the American consumer were greatly exaggerated after U.S. May retail sales data rose at a healthy pace and the decline in the prior month was revised to show a gain.
U.S. retail sales increased 0.5 % in May, with broad-based gains, the US Commerce Department said Friday. Economists polled by MarketWatch had forecast a solid 0.7 % gain.
There was a big rise in auto sales, but retail sales excluding the sector rose 0.5 %, the government said.
April sales were revised up to a 0.3 % gain from the initial report of a 0.2 % fall.
What happened: Almost all categories showed solid gains in May. The only declines were food and beverage stores, department stores, miscellaneous stores and clothing.
Electronic store sales jumped 1.1 % in May. Health and personal care stores also had a strong sales gain.
Auto sales rose 0.7 %. They account for about one-fifth of all retail sales. Retail sales excluding autos and gas also rose 0.5 %.
“Nonstore” retail sales rose 1.4 % in May, the strongest gain since January.
Big picture: Retail sales have been choppy this year, raising some doubts about the health of the overall economy. Economists have been counting on consumers to keep spending at a level to prolong an expansion that will set a record for the longest ever later this summer.
The solid report may allow the Federal Reserve to wait a bit before cutting interest rates. After the weak job report for May, some economists thought the Fed might ease as soon as next week to bolster what was perceived as a slowing economy. The market is now expecting the Fed to cut rates in July. Some prominent economists, like the team at Goldman Sachs, think expectations of a rate cut over overdone and the central bank will remain on hold this year.
Economists said real consumer spending was up at more than 4% annual rate in the second quarter, after a smallish 1.3 % gain in the first quarter.
What they are saying: “The consumer is firmly back on track: the first quarter’s softness was misleading,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.
Market reaction: The yield on the 10-year Treasury note TMUBMUSD10Y, +0.00 % rose roughly 1 basis point to 2.107 after the strong report. The Dow Jones Industrial Average DJIA, -0.07 % was set to fall at the open on lower chances of a rate cut this summer.