US: Retail sales strong, but does it matter? – Scotiabank

Research Team at Scotiabank, notes that the US retail sales were solid for the month of May at +0.5% m/m, stronger than consensus expectations.

Key Quotes

“Perhaps just as important, there were no major revisions to April, which still stands at +1.3% m/m on headline and was actually marked up to +1% m/m in terms of the retail sales control group (which lines up with the parts of retail spending that wend their way into U.S. GDP.

The implication is that the consumer looks quite solid in Q2 — and thus GDP should be in the 2.5% q/q annualized area or higher. Prior to the extremely disappointing May jobs numbers, released just two Fridays ago, a retail sales print of this magnitude (combined with the solid April number) would have pointed to a Fed hike in June or July. (At the time, the Fed was guiding that above-trend GDP in Q2 would justify a hike). Of course, much has changed. The risks are now concentrated in the labor market (and in UK politics), and the Fed of course will require more labor market data before it makes a decision about monetary policy rate increases one way or the other.

The details of the number are all quite good. Sales at motor vehicle dealers (+0.5% m/m), electronics stores (+0.3% m/m), food stores (+0.5% m/m), clothing stores (+0.8% m/m), eating and drinking establishments (+0.8% m/m), and on the internet (+1.3% m/m) were all very strong. The only weak points were building materials (-1.8% m/m), furniture (-0.1% m/m), general merchandise stores (-0.3% m/m), and the miscellaneous category (-1.2% m/m).”