Upbeat retail sales of US stimulates economy

The Census Bureau will report on retail activity tomorrow and we expect this to be the strongest report in recent times. Hence, it is expected that much of the recent weakness to reverse in May. 

Impact on Fed: Better retail sales data could also be a booster for the Fed's optimism on the outlook which could act as rate hike factor.

Retail Boosters: The recent surge in auto sales and rising outlays on housing-related items such as electronics, furnishing and home improvement are likely to influence on US retail sales figures.

Investors questions Consumption: Forward-looking investors have been questioning whether consumers are ready to deploy their rising incomes, better savings and the windfall from falling gasoline prices this year.

Improved Jobs: Beneath the top line estimate, a confluence of improving fundamentals - improving demand for credit, better job growth, higher wages and salaries (see chart below) and a stronger savings rate - all point to an above-consensus print in the key ex autos and gasoline estimate.

Projections: We project a 1.9% MoM gain in total retail sales, a 1.4% gain excluding autos, and a 0.5% increase in the "retail control" group.

The enlarged uncertainty surrounding the US outlook has a lot to do with the unexplained retrenchment in consumer spending.

Thus, we expect that the May and June retail sales data will provide the jump-off point for a much better consumption picture, one that demonstrates demand beyond autos and services and spills over into the broader retail category.