Solid May Retail Sales Suggest Upside for Q2 Consumption

Wells Fargo Research Team Wells Fargo

Retail sales rose 0.5% in May. Upward revisions to prior months' data, and a standout gain in control group sales, not only make this a solid report but also suggest consumer spending is on pace to have a solid Q2 gain.

Digging Into the Details

The gain in May sales was broad-based, with 11 of the 13 business categories seeing sales advance over the month. Only grocery stores and miscellaneous retailers sales retracted.
As expected, motor vehicle and parts dealers helped lift the headline with a 0.7% rise in sales. This is consistent with May's gain in vehicle sales to dealers, seen in a previous release, and with the renewed gain in consumers' desire to buy a vehicle.

Upside to Second Quarter Growth

Excluding volatile components such as food, gas, autos and building materials, control group sales—a good proxy for consumer spending—rose 8.5% on a three-month annualized rate. This is the fastest pace since 2006. The stronger-than-expected gain and upward revision to April suggests some upside risk to our 2.9% call for Q2 consumption growth. After a volatile few months, consumption looks back on track.

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Wells Fargo Research Team

Wells Fargo

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