Retail sales drop but consumer confidence rises. What gives?
Two pieces of data about the American consumer came out this morning that seem to conflict with each other. But a look behind the headlines can help resolve the confusion.
At 8:30, the Commerce Department told us that May retail sales dropped by a surprising 1.2 percent compared with April. Forecasters were expecting sales would ease back a little from April but not drop like they did.
Less than two hours later, the Reuters/University of Michigan consumer sentiment survey for early June reported that the U.S. consumer is a lot more optimistic than forecasters expected.
So, what's going on?
First, let's take a look at the survey. That's just what it is: a survey. Reuters and Michigan survey 500 households (a small but statistically legitimate sample) across the country and ask them what they think of their current conditions and what they think conditions will be like in six months. Both the current and future conditions' index numbers rose in May, which surprised me, given that last month was the worst stock market May in 40 years. But consumers on Main Street evidently feel better than traders on Wall Street. I'm no class warrior, but that's a nice change. The truth is, the markets aside, the economic news -- employment (at least government), auto sales and so forth -- have been steadily, if weakly, improving.
Now to retail sales.
Yes, sales dropped 1.2 percent from April to May. But compared with May 2009, sales were actually up 7 percent. Granted, May 2009 was a crap month, but 7 percent is still 7 percent.
Now, chop up the retail sales data from last month. It was a bad month for auto sales. (Despite what automakers reported earlier this month. Hmmm...) It was also a bad month for home-improvement stores, such as Home Depot and Lowe's. Finally, gasoline sales dropped 3.3 percent.
So if you remove these three categories from last month's numbers, overall retail sales actually rose 0.1 percent in May compared with April. That ain't a lot, but it's better than a decline.
Who is the U.S. consumer now? This June Gallup survey shows a sharp increase in spending among those making more than $90,000 per year while low- and middle-income spending remains unchanged. Also, older Americans are spending more. Possibly their kids' inheritance. Why not?
Consumer spending accounts for about 70 percent of U.S. GDP. As this is so far a jobless recovery (at least jobs created in the private sector), Americans will have to spend their way to stronger economy.
June 11, 2010; 2:26 PM ET
Categories: Data , The Ticker
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