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Consumers Try On a Swagger

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Retail sales surged 0.8% in May, buoyed by a gain in vehicle sales, a jump in spending at building and garden centers and higher prices at the gas pump.The push by older home owners to remodel instead of trading up is particularly strong; skilled carpenters are almost impossible to find. The backlogs for garden and landscaping businesses has also surged. Part of that is due to delays created by unusually bad weather earlier in the cycle.

Core retail sales, which exclude sales in the volatile vehicle, gasoline and building and garden supply store categories, rose a strong 0.5% in May following upward revisions to April sales. Clothing did remarkably well as people took advantage of the better weather to kick up their heels, go out and spend at bars and restaurants. Even general merchandise stores, which have suffered from the shift to online spending, posted better sales in May. Traditional department stores, which tend to attract older shoppers, actually outperformed the big-box discounters during the month.

Furniture and appliance stores, which had seen strong gains in April, lost sales in
May along with sporting goods, hobby and book stores. I happen to like bookstores but am amazed when I see one these days, given how much I read on my electronic devices.

Bottom Line
Consumers showed a little swagger in May, which confirms our forecast for a sharp rebound in consumer spending in the second quarter of 2018. This is one of a long list of reasons that the Federal Reserve Open Market Committee (FOMC) felt comfortable raising rates and moving its forecast on rate hikes up to four this year, instead of three.


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