Spending Like Crazy: Retail Sales Jump but Bond Yields Lower

Retail sales jumped far more than expected in May, up 0.8% vs a consensus estimate of 0.4%. Curiously, bond yields fell.

The Advance Estimate of U.S. Retail and Food Services suggests consumers are spending like crazy.

Advance estimates of U.S. retail and food services sales for May 2018, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $502.0 billion, an increase of 0.8 percent (±0.5 percent) from the previous month, and 5.9 percent (±0.5 percent) above May 2017. Total sales for the March 2018 through May 2018 period were up 5.2 percent (±0.5 percent) from the same period a year ago. The March 2018 to April 2018 percent change was revised from up 0.2 percent (±0.7 percent)* to up 0.4 percent (±0.2 percent).

Retail trade sales were up 0.8 percent (±0.5 percent) from April 2018, and 6.0 percent (±0.5 percent) above last year. Gasoline Stations were up 17.7 percent (±1.6 percent) from May 2017, while Nonstore Retailers were up 9.1 percent (±1.4 percent) from last year.

U.S. Retail Sales Post Biggest Gain in Six Months

In May, auto sales rose 0.5 percent after gaining 0.2 percent in April. Receipts at service stations surged 2.0 percent, reflecting higher gasoline prices. Prices at the pump have risen by 15.5 percent this year, according to U.S. Energy Information Administration data. Expensive gasoline, if sustained, could pull spending away from other categories.

Sales at building material stores rebounded 2.4 percent last month after declining 0.8 percent in April. Receipts at clothing stores surged 1.3 percent, the largest gain since March 2017. There were also increases in online retail sales, but receipts at furniture stores fell 2.4 percent, the largest drop since December 2013.

Sales at restaurants and bars jumped 1.3 percent, the biggest gains since January 2017.

ECB to End Bond Buying

I did not expect consumers to start spending like crazy. And if you told me that was about to happen, I sure would not have expected lower bond yields.

Apparently, the bond market is reacting to today's announcement that the ECB would end its monthly asset purchases in December.

That too would seem to be a bearish bond development. However, the ECB’s dovish forward guidance suggested rates would stay low for longer than had been expected.

Mike "Mish" Shedlock

Yes but funny the inventory numbers don't confirm the retail sales. Which apparently also has a new methodology of late too?

What we seeing are supply constraints, bottlenecks in production due to record low unemployment. The fed should be more concerned with the economy overheating at 4% gdp fed funds should be a 5% at least. Remember in 2000 fed funds went to 6.5% the last time the economy was this good

What about expenses that families have to pay like for child care, children's after school activities and stuff like that. Are those expenses up as well? Doesn't that take away from disposable income that would have gone for yet another pair of designer $300 jeans or another $200, pair of sneakers.. I mean does Day care really cost over $1000 a month,???

0.8% is a pretty lame rise... perhaps its just a consequence of holiday bonuses, a surge in tourism or just fear that trade wars will raise prices. Maybe its just convincing summer advertising. It sure ain't because the economy is improving.

Good, as in pleasant (not excessively hot), weather, per the shrinks and the behavioral “economists,” improves mood, confidence and optimism. As well as inspires people to get off their rears and do stuff, make changes etc. Both which at least plausibly can be argued to increase transaction volumes.