U.S. Retail Sales Unexpectedly Strong in May

• U.S. retail sales rose by 1.0% M/M in May, beating market expectations for a +0.5% M/M print.
• Excluding autos, sales were up 1.2% M/M, also better than the +0.7% M/M market consensus.
• The increase in sales was remarkably broadly-based, with 12 of 13 categories posting gains.

U.S. retail sales rose for the third straight month, advancing by a strong +1.0% M/M in May, following the upwardly revised 0.4% M/M (previously reported as -0.2% M/M) increase in April. A major driver of this surge in spending may have been the fiscal stimulus cheques that are now arriving in mailboxes. The increase was much bigger than the +0.5% M/M expected by the markets, and was the biggest rise in this indicator since November last year. Excluding autos, sales were up by 1.2% M/M, beating market expectation for a more modest 0.7% M/M gain, and follows the +1.0% M/M print in April. The 3-month ann. trend for retail sales is now up to a whopping 8.0%, from 1.6% in April.

The details of the report were fairly broadly based, with all but 1 of the 13 categories advancing on the month. In particular, there were sizeable gains in the sale of furniture (+0.4% M/M), electronics (+0.7% M/M), building materials (+2.4% M/M), health and personal care (+0.8% M/M), gasoline (+2.6% M/M), general merchandise (+1.2% M/M) and food (+0.9% M/M). Only the obscure miscellaneous items category posted a modest 0.6% M/M decline. On a year ago basis, sales are up 3.0%, though slightly down from 3.7% Y/Y in April, while ex-autos retail sale are 6.1% higher than they were a year ago.

The report was just plain strong, and highlights the resiliency of U.S. consumers despite difficult conditions and the impact that the tax rebate cheques are having on consumer spending. Indeed, despite rising food and energy prices, a deteriorating labour market and slumping home prices, U.S. consumers continue to make their way to the malls in droves with rebate cheques in hand. However, we expect this level of retail activity to ease somewhat after the rebate cheques get spent, with consumer spending retuning to softer levels in the second half of the year. Nevertheless, this heightened level of consumer spending will certainly provide some much needed boost to the U.S. economy in Q2.

TD Bank Financial Group

The information contained in this report has been prepared for the information of our customers by TD Bank Financial Group. The information has been drawn from sources believed to be reliable, but the accuracy or completeness of the information is not guaranteed, nor in providing it does TD Bank Financial Group assume any responsibility or liability.