In May 2011, US headline retail sales fell by 0.2%m/m. The market was expecting a fall of 0.5%m/m. This is the first monthly decline in US retail sales since June 2010. The previous month’s growth rate was revised lower from an initial +0.5%m/m to +0.3%m/m. On an annual basis, US retail sales are still up a very respectable 7.8%y/y (in nominal terms), although this is down from 9.1%y/y in February.
If motor sales are excluded, retail sales rose by a more encouraging 0.3%m/m in May 2011 (slightly above expectations, but slower than the previous month). In addition, if vehicle and gasoline sales are excluded (ie core retail sales), retail spending was also up 0.3%m/m, above expectations for a rise of 0.2%m/m (see chart attached on core retail activity). On an annual basis, core retail spending actually increased to a growth rate of 6.2%y/y from 4.9%y/y in April.
As we mentioned last month, it is fascinating to see the continued strong rise in ‘non-store retailing’ which includes electronic on-line shopping. Non-store sales rose by a further 1.2%m/m in May and are up a robust 15.9%y/y over the past year. (We provided a detailed analysis of US non-store retailing last month).
Overall, the US household sector is in a better financial shape now than a year-ago (lower debt/income ratio, lower debt servicing costs, improved savings etc), and consumer income has recorded a meaningful improvement since the Great Recession.
There is some evidence to suggest that the momentum in the rate of growth of consumer activity has slowed a little recently (including vehicle sales). The higher gasoline and food prices are also clearly a concern, as is the recent fall-off in consumer confidence and worse than expected jobs data for May (but still a gain in employment).
However, this slowdown or slight loss of momentum in consumer activity is (at least at this stage) not especially alarming and can probably best be described as a ‘soft-patch’ rather than something more sinister. In fact, the modest easing in household saving’s levels, coupled with a slight increase in consumer credit (non-mortgage consumer credit) suggests that the consumer is behaving in a rational and controlled manner.
However, this does not imply that households are about to embark on a massive debt/spending spree. Rather, we expect US consumer activity to continue to show a steady but slightly below average rate of improvement, with the growth in employment dictating the overall pace of growth in household spending.
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