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  Retail Sales Increased 1.2% in May
Posted Under: Data Watch • Retail Sales
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Implications: The economy continues to rebound, leaving behind the temporary lull in the first quarter. Retail sales rose 1.2% in May and were up 1.9% including revisions to prior months. In the past three months, retail sales are up at a whopping 12.6% annual rate, undermining the theory consumers were just sitting on the money they saved from lower gas prices. The largest gains in May were for some of the most volatile categories – autos, gas stations, and building materials. However, "core" sales exclude all three of these categories and were still up 0.6% in May, signaling the breadth of the gain in consumer spending. Core sales have now risen in 14 of the past 16 months, an unusually stubborn upward path, and are up at a 7.1% annual rate in the past three months. Plugging these sales into our models suggests "real" (inflation-adjusted) consumer spending, on goods and services combined, will be up at about a 2.5% annual rate in Q2, an acceleration from the 1.8% pace in Q1. Combined with this morning's news that business inventories rose 0.4% in April, it now looks like real GDP is growing at about a 3% rate in Q2. Although some analysts will bemoan the fact that overall retail sales are up only 2.7% in the past year, it's important to recognize that, due to the huge drop in oil prices, overall prices are roughly unchanged from a year ago. Given continued job growth, relatively healthy consumer balance sheets, and pent-up savings from lower gas prices, look for more solid increases in retail sales in the months ahead. In other news this morning, initial claims for unemployment insurance rose 2,000 last week to 279,000, the 14th straight week below 300,000. The four-week moving average is also 279,000. Continuing claims for regular state benefits increased 61,000 to 2.27 million. These figures are consistent with payroll growth in the 200,000 – 250,000 range in June. Meanwhile, on the inflation front, still no sign of a problem in the trade sector. Import prices increased 1.3% in May but are still down 9.6% from a year ago. The drop is mostly from petroleum, but not all of it; import prices are down 2.6% from a year ago even excluding petroleum. Export prices rose 0.6% in May, and excluding farm products, were up 0.7%. Export prices are down 5.9% from a year ago.

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