Record Gain in U.S. Retail Sales Offers Hope of Faster Recovery
U.S. retail sales jumped in May by the most on record and double forecasts.
(Bloomberg) -- American consumers are getting their groove back as a record surge in May retail sales offered some hope of a quicker recovery from the pandemic-induced recession.
The 17.7% advance from the prior month, to $485 billion in receipts, was the biggest gain in data going back to 1992, following unprecedented declines in the prior two months, according to Commerce Department data out Tuesday.
Stocks jumped as the May advance was more than double the median projection, though optimism was tempered by tepid figures on industrial production along with fresh concern about an acceleration in Covid-19 cases.
Even so, the retail figures, emerging after a surprise 2.5 million increase in U.S. jobs during the month, suggest a faster-than-anticipated rebound from what’s likely to prove the steepest downturn since the Great Depression. After months of being stuck at home because of the coronavirus, Americans began to travel and visit store fronts as states relaxed lockdowns.
“The fact that people left the house, went to stores, went to restaurants, they’re going out to eat, going out to grab a drink -- that to me shows that you can never underestimate the American consumer,” said Jennifer Lee, senior economist at BMO Capital Markets.
At the same time, the value of sales was 6.1% below a year earlier and it’s not clear whether retailers will enjoy such outsize gains in coming months. Tens of millions of Americans continue to collect unemployment benefits and the recovery in some parts of the economy, such as manufacturing, may experience a slower bounceback.
Investors and President Donald Trump greeted the news with enthusiasm.
The increase in retail sales was likely the result of government stimulus, and shows why lawmakers need to extend those measures, according to Ryan Sweet, head of monetary policy research at Moody’s Analytics.
“Stimulus packed more of a punch than economists anticipated,” Sweet said. “If you put money in people’s pockets, people are going to spend.” He cautioned that it’s important to look at the retail spending levels as well, which remain well below pre-coronavirus activity.
Meanwhile, industrial production rose in May by less than forecast after a record decline a month earlier. Output at factories, mines and utilities increased 1.4%, compared with a median projection for a 3% gain, Federal Reserve data showed.
“Recently, some indicators have pointed to a stabilization, and in some areas a modest rebound, in economic activity,” Fed Chairman Jerome Powell said Tuesday in testimony delivered via videoconference before the Senate Banking Committee. “That said, the levels of output and employment remain far below their pre-pandemic levels, and significant uncertainty remains about the timing and strength of the recovery.”
All retail categories increased in May, including a 44% surge in sales of motor vehicles and a 29% jump in restaurant receipts. Together, those categories accounted for more than half the overall gain in sales.
What Bloomberg’s Economists Say
“It will likely take some time for activity to return to the trend seen in the previous expansion once stimulus support fades going into the second half of the year. Lockdown measures may be reintroduced in several states as Covid-19 cases rise, which could weigh on consumer confidence later in the year. As a result, elevated savings rates could cap a vigorous rebound akin to the May print as the year progresses.”
-- Yelena Shulyatyeva, Eliza Winger and Andrew Husby
Read more for the full reaction note.
The increase in auto sales is consistent with separate data from Wards Automotive Group earlier this month that showed a 42% advance from the prior month to the highest level since February.
Among other categories, sales at clothing stores nearly tripled in May from a month earlier, while purchases at building materials outlets climbed about 11% and non-store sales, which consist mainly of Internet purchases, rose another 9%.
Read More:
The so-called “control group” subset of sales, which excludes food services, car dealers, building-materials stores and gasoline stations, increased 11% from the prior month. In more normal times, the measure is viewed as a better gauge of underlying consumer demand, though that’s less the case now.
Still, risks remain as the number of Covid-19 cases is rising in some states that have recently reopened, including populous Texas and Florida. Florida reported Tuesday that new cases rose to the highest level since the pandemic began and Texas saw hospitalizations surge. Meanwhile, Beijing shut its schools on concern about new infections.
In contrast with data-collection quirks in the employment figures, the Census Bureau said that data quality for the retail report was broadly unaffected by Covid-19. The agency continued to use the same standard weighting and estimation methods, and the reliability “has not changed substantially.”
©2020 Bloomberg L.P.