June 15, 2021 | 09:16
U.S. Retail Sales and Producer Prices (May)
U.S. consumers took a breather in May but spent more at retail outlets than initially reported in April. Meantime, services spending is likely storming back as more businesses fully reopen and more vaccinated persons venture outside, and where pent-up demand is the highest.
Retail sales fell 1.3% in May, more than expected, but April's initial flat print was ratcheted up to a 0.9% increase. Total sales are now 18% above pre-pandemic levels. The decline in sales was fairly widespread due to the stimulus payments' hangover from March's spending spree (11.3%). Auto sales reversed most of the prior month's acceleration, partly due to model shortages stemming from earlier plant closures. Sales of furnishings, general merchandise and even non-store items retreated. The declines were partly offset by stronger sales of clothing and food. As well, gas station receipts bounced higher despite lower fuel costs in the month, as more travelers hit the roads and more workers returned to the office. And, restaurant/bar receipts jumped another 1.8%, pushing them above pre-pandemic levels. The control measure of retail sales that feeds into PCE fell 0.7% in May, though the prior month's sharp decline was whittled down to -0.4%.
For the first two months of Q2, retail sales are up 27.3% annualized from Q1, while control sales are up 14.7%. Of course the CPI has also ballooned 7.1%, but that still leaves total retail volumes with a roughly 20% annualized advance for the quarter. Assuming a rebound in June retail sales and a rotation of spending toward services, we still expect a hearty gain in Q2 consumer spending, though there is some downside risk to our current 10.7% call (and likewise to our 11.0% view on GDP).
Meantime, consumers will likely face a few more months of heated price increases, as the producer price index jumped another 0.8% in May, kicking the yearly rate up to 6.6% from 6.2% in April. Core prices rose 0.7% for yet another month, lifting its yearly rate to 4.8% from 4.1%.
The Fed will need to balance tentative signs of moderation in still-strong consumer spending with the raging price figures of late at the conclusion of its policy meeting tomorrow. Overall, the time for taper talk is nigh.