In May 2010, US retail sales fell by a very disappointing 1.2%m/m. This was well below market expectations for a rise of 0.2%m/m. The April 2010 reading was revised up to 0.6%m/m from 0.4%m/m. US retail sales performed well over the three month period from February 2010 to April 2010.
If motor sales are excluded, retail sales fell by an equally disappointing 1.1%m/m, below expectations for a rise of 0.1%m/m. If vehicle sales and petrol sales are excluded (which is appropriate since sales are reported in nominal terms) retail sales were down 0.8%m/m. This was also well below expectations for +0.2%m/m.
On an annual basis, US retail sales are up 6.9%y/y (in nominal terms), which is still encouraging, but below the peak of 9.0%y/y in April 2010. Importantly, excluding vehicles and gasoline, sales are up are more modest 4.4%y/y, which is well below the average from 2004 to 2007 of 5.5%.
The worse than expected decline in retail activity during May was mainly due to a record 9.3%m/m drop in sales of building materials (possibly due to the ending of a government rebate on sales of energy saving devices. This seems extremely likely given the large increase in this category’s sales last month), a 1.3%m/m fall-off in sales of clothing and a 1.1% decline in general merchandise sales, which is a key category.
Fortunately, the retail sector does not appear to be carrying any excess stock; as reflected in the current record low stock to sales ratio for the retail sector (see chart attached).
After improving noticeably from February 2010 to April 2010, consumer activity disappointed in May. The overall improving trend remains, but our base-case view that US consumer activity will struggle to regain the previous peaks is firmly in-place, especially given the still sluggish growth in private sector employment (see our forthcoming update on the global base-case view).
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