US Retail Sales Beat Market Estimates in May

U.S. shoppers kept their wallets open for the fourth straight month as retail sales rose at a better-than-expected pace in May, new government data show.

Retail sales advanced 0.9 percent last month, from a downwardly revised 0.4 percent gain in April, according to new Census Bureau data released on June 17.

Economists had predicted a reading of 0.5 percent.

Transactions at gasoline stations were the biggest driver, climbing more than 3 percent.

Motorists have been contending with elevated gasoline prices for more than three months as the war in Iran upended global energy markets.

But relief could be on the way for drivers as the national average for a gallon of gas is inching closer to $4.

Despite strong volumes at the pump, commerce was broad-based, including digital retailers (1.5 percent), car dealerships (1.2 percent), and furniture stores (1 percent).

Retail sales were flat for building material and garden equipment stores, food and beverage outlets, and electronics and appliances vendors.

Overall retail sales excluding autos and gasoline advanced 0.5 percent, maintaining the same rough pace since the beginning of the year.

For Bank of America strategists, the numbers are not entirely surprising, as internal card data reflected similar strength last month.

“Consumer spending momentum is remarkably robust,” they wrote in a June report.

“Consumer financial health remains strong, with no clear signs of households resorting to borrowing to support spending.”

The bank reported that total card spending rose more than 5 percent year over year in May, the best reading in almost four years. Excluding gasoline, total credit and debit card spending per household jumped nearly 4 percent from the same time a year ago.

Tailwinds from this year’s $325 billion in tax relief could help offset the tepid decline in real (inflation-adjusted) wage growth caused by the Iranian conflict in recent months.

Real average hourly earnings dipped 0.1 percent in May, and real average weekly earnings slid 0.2 percent, according to the Bureau of Labor Statistics.

GDP Outlook

A resilient consumer could bode well for second-quarter growth prospects.

Retail sales control group—a steadier metric that excludes non-core sectors—climbed at a higher-than-expected rate of 0.7 percent, topping market estimates.

Economists use this measure for their gross domestic product (GDP) calculations.

The economy in the April–June period is on track for solid expansion. The Atlanta Federal Reserve’s widely watched GDPNow Model estimates nearly 3 percent growth, a strong rebound from the 1.6 percent recorded in the first quarter.

But while consumer spending is expected to account for 58 percent of second-quarter growth, slower residential investment could impact the headline GDP reading, says Jeffrey Roach, chief economist for LPL Financial.

In May, building permits fell 0.7 percent, and housing starts plunged more than 15 percent, according to Census Bureau data published on June 17.

“Given the slowdown in new housing construction, residential investment will likely drag on GDP growth this quarter,” Roach told The Epoch Times in an emailed note.

“In Q1, this category subtracted a quarter point from headline GDP and we could expect something a bit worse for Q2. In sum, we still have a tight housing market.”

The Atlanta Fed says residential investment will add 0.05 percent to the GDP.

Conversely, business investment, particularly the artificial intelligence (AI) buildout, continues to power the economy forward.

Scores of U.S. companies plan to spend up to $1 trillion in AI-driven capital expenditures this year, and Goldman Sachs anticipates it could top the trillion-dollar mark next year.

Since capex—data centers, semiconductors, robotics, and other AI developments—takes time, the benefits will continue to support the economy and companies’ earnings growth.

“The AI capex boom is percolating into ‘pick and shovels’ companies that are getting the data centers on their feet,” Giuseppe Sette, co-founder and president of investment research firm Reflexivity, said in a note emailed to The Epoch Times.

“There’s an important takeaway we can derive from this. AI capex are like all capex, they take time to deploy, which means you can count on them to continue propping earnings growth for the foreseeable future.”