Retail sales report may hold important clues to growth

Autodata said last week that auto sales rose to a seasonally adjusted annual rate of 17.8 million units in May, beating economists’ expectations.
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The robust jobs report for May was last week’s biggest business news, but boatbuilders and other makers of big-ticket items would be wise to take note of a jump in U.S. auto sales for the month and watch for signs of corresponding growth at other stores in the May retail sales report the government will issue on Thursday.

Autodata said last week that auto sales rose to a seasonally adjusted annual rate of 17.8 million units in May, beating economists’ expectations. GM, Fiat Chrysler, Volkswagen of America, Audi, BMW and Mercedes-Benz were among the automakers that reported sales increases for the month. The gain was the strongest since July of 2005.

The Detroit News reported that easy credit, longer loans and Memorial Day weekend promotions lured buyers into showrooms.

“With the national average price of gasoline down nearly a dollar per gallon, on average, from one year ago, truck and SUV demand remains strong, elevating average transaction prices, especially for domestic automakers, in May,” Kelley Blue Book senior analyst Karl Brauer told Automotive News. “We also saw incentives spending remain nearly flat in May, which shows the strength of the overall new-car market.”

As the Federal Reserve decides whether to raise interest rates later this year, it will look beyond the growth reflected by the 280,000 new jobs the economy added in May and an 8-cent increase in average hourly earnings to gauges such as auto sales and broad retail sales results.

Retail sales were flat in April, but MarketWatch is reporting that better weather and May’s strength in vehicle sales probably portend higher spending at a range of stores.

“We are expecting there to be improvement across the board,” Sam Bullard, senior economist at Wells Fargo Securities, told MarketWatch.

MarketWatch said healthy jobs and spending data will likely support the Fed’s plan to raise rates this year, a step officials want to take to avoid an “overheating” economy, as Federal Reserve chairwoman Janet Yellen warned in a speech.

“Retail sales numbers should look really good, and it they come after a strong employment report, those may be the two most important variables that will give the [Fed] more comfort,” said Joseph LaVorgna, chief U.S. economist with Deutsche Bank.

The Fed’s rate-setting Open Market Committee will meet June 16-17, but economists don’t expect the Fed to raise rates at that time.

The Commerce Department reported May 29 that the nation’s gross domestic product fell by a seasonally adjusted annual rate of 0.7 percent in the first quarter, and the Fed is likely to wait for more statistical confirmation that the economy is growing sufficiently for inflation to pose a threat.


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