US retail sales to post largest increase in five years

After a long string of disappointing retail figures, the data is expected to turn. The Census Bureau is expected to report that retail sales increased by 1.9% m/m in May. This would mark the strongest sequential gain since March 2010. Autos and gasoline make up 80% of the projectected gain. 

Auto sales are expected to increase by 3.9% and contribute 0.8% to the overal increase. Gasoline prices averaged 10% higher in May compared to April before seasonal adjustments, and a total gas station sales is likely to post an 8.6% increase, contributing 0.7% to total retail sales. 

The recent pick-up in home buying activity also points to strength in sales of building materials. A 1.2% increse is assumed in this category, which should boost the headline by 0.1%. The retail control group, which excludes the aforementioned items and makes up about 60% of the report, is expected to post a 0.5% sequential increase after a flat reading in April. 

If the forecasts materialize and retail sales rise by 1.9% m/m, this would reverse much of the negative momentum in consumer spending. For example, the 3m annualized growth rate in total sales would go from -2.4% in April to +4.7% in May and the control group would accelerate from 0.5% to 2.5% annualized. Although inflation will 'eat up' a significnat portion of the projected May gain, the net result should nonetheless be positive. 

"Our forecast is consistent with nominal PCE expanding by 0.8% m/m, and we project that the PCE deflator will rise by 0.4% for a net increase in real consumption of 0.4%. In order to hit our 2.6% assumption on consumption growth in the second quarter, we will need to see a similar gain in nominal spending in June",says Societe Generale.