US GDP likely to rebound on strong consumption growth in Q2 2016

Retail sales in the US increased 0.5 percent in May on sequential basis. May’s retail sales data came in better than projection. Economists had anticipated a weaker rise of 0.3 percent. The headline figure was mainly driven by strong growth in auto sales and gasoline sales of 0.5 percent and 2.1 percent, respectively.

Following months of subdued spending, it seems that consumers are finally opening their wallets as there has been a rebound in job outlook, with disposable incomes rising further helped by accumulated savings at the pump in the last several quarters.

The strong retail sales data for May further strengthens the view that consumers have increased their spending strongly in the second quarter following a meek spending in the months of winter. Personal consumption expenditures are at present tracking more than 3.5 percent quarter-on-quarter annualized in the second quarter.

It implies that the US economic growth is likely to come in quite strong at 2.5 percent in the second quarter following a subdued growth recorded in the beginning of 2016, said TD Economics in a research report.

The retail sales data released is quite positive even if certain growth is expected to be due to price effects. Gas purchases increased retail sales, but the strength was registered throughout the board. Drop in sales of building materials was quite a surprise given the strong sales recorded recently in the existing home segment. However, renovation activity is led by homes sales usually and hence summer months are expected to record improved building material sales, added TD Economics.

Retail sales, stripping sales at automotive dealers and gas stations, increased 0.3 percent m/m in May. Delving into details, sporting goods and non-store retailers recorded a rise in sales of 1.3 percent each, Also, strong growth throughout sales was registered at restaurants and clothing stores, both of which grew 0.8 percent month-on-month.

Building materials stores’ sales declined 1.8 percent, whereas general merchandise stores’ sales fell 0.3. The “control group” sales, excluding auto dealers, restaurants, building material stores and gas stations grew 0.4 percent, as compared with the expected rise of 0.3 percent.