American consumers reined in their spending habits in May with retail sales rising less than a third of the average of the previous three months.
Sales rose 0.3 percent on the month, half the 0.6 percent forecast and much less than the 1.0 percent average gain in February, March and April, according to the Census Bureau today. The initial 0.1 percent increase for April was revised higher to 0.5 percent.
Sales without automobile purchases rose 0.1 percent in May, less than the 0.4 percent median prediction from the Bloomberg survey. But again, a much stronger revision to April from flat to 0.4 percent mitigated the weak May result.
The so-called 'retail sales control group' the category closest to the consumption component of GDP was flat in May on a 0.4 percent prediction. As with the other results April’s first estimate of -0.1 percent was adjusted up to 0.2 percent by the Census Bureau.
In the first three months of the year the 'control group' averaged a 0.23 percent monthly increase. First quarter GDP currently stands at a -1.0 percent annualized rate. This is expected to decline to a -1.5 percent to -2.0 percent pace when the final revision is issued on June 25th.
Perhaps surprisingly, given the large credit given by many analysts to the effect of winter on the consumer and the economy in the first quarter, the average increase of the 'control group' in the first two months of the second quarter has been only 0.12 percent, half the measure of the first quarter.
Even if May’s initial flat result is revised 0.3 percent higher as was April's that would put the average increase in two-thirds of the second quarter at 0.27 percent, not the level of consumer spending to drive GDP to the 3.5 percent to 4.0 percent rate expected by many economists.
In comparison, the average increase in the fourth quarter when the economy expanded at a 2.6 percent annual rate was 0.31 percent. The 4.1 percent GDP surge in the third quarter was largely driven by business inventory expansion, consumption increased only a modest 0.28 percent a month.
The 1.01 percent increase in the March 'control group' spending does seem to have been related to a winter pause in January and perhaps February. But the mediocre showing in April and May makes it clear that the surge post-winter was likely displacement from one month to another. It does not represent a new and stronger trend in consumer spending.
Chief Market Strategist
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