Retail Sales Probably Increased in May: U.S. Economy Preview

Sales at U.S. retailers probably rose in May as an improving job market gave consumers the confidence to shop for automobiles, home furnishings and clothing, economists said before reports this week.

The projected 0.4 percent increase would be the biggest in three months and follows a 0.1 percent gain in April, according to the median forecast in a Bloomberg survey of 61 economists before June 13 figures from the Commerce Department. Another report this week may show factory production climbed for the first time in three months.

General Motors Co. and Gap Inc. are among companies prospering as a pickup in hiring, pared with higher home and stock prices, helps Americans cope with this year’s payroll-tax increase. Nonetheless, even bigger employment and wage gains will be needed to shore up household finances as cuts in federal spending cause the world’s largest economy to slow this quarter.

“Consumers are not feeling the need to pare back their spending to offset the impact of the tax increases, with confidence in the labor market rising and balance sheets improving,” said Ted Wieseman, an economist at Morgan Stanley in New York.

Same-store sales rose last month for nine of the 10 companies tracked by Swampscott, Massachusetts-based Retail Metrics. L Brands Inc.’s sales climbed 3 percent, beating the 2.9 percent estimate. Purchases at the company’s Victoria’s Secret brand were up 4 percent, while the Bath & Body Works brand gained 3 percent.

Clothing Sales

San Francisco-based Gap, the largest U.S. specialty apparel retailer, last week reported a 7 percent increase in May sales compared with the same month last year, almost double the 3.7 percent gain projected by analysts on average.

“We are pleased with the positive customer response to summer product across our brands and the continued momentum in the business,” Glenn Murphy, the retailer’s chairman and chief executive officer, said in the statement.

American employers took on more workers than forecast in May as the economy weathered the impact of higher taxes and federal spending cuts, Labor Department figures showed last week.

Payrolls rose by 175,000 workers after a 149,000 increase in April. The unemployment rate climbed for the first time in four months, rising to 7.6 percent from 7.5 percent, as a surge in the number of people entering the labor force exceeded the number of positions available.

Auto Demand

Automakers also are seeing a boost in orders as consumers find the wherewithal to spend. Cars and light trucks sold at a 15.2 million annualized rate in May, making it the sixth month out of the last seven to exceed the 15-million mark -- a level that previously hadn’t been reached since February 2008.

“Although fiscal constraints are a headwind, net-net, we like what we’re seeing on the economic front,” Kurt McNeil, GM’s vice president of U.S. sales operations, said on a June 3 sales conference call. “Positive factors at work in the economy include May’s rebound in consumer sentiment, lower unemployment, and the 14th consecutive month of higher housing prices. If we use our own sales as a barometer, it appears that the recovery is becoming even more broad based.”

Climbing home and stock prices are boosting household wealth, leading to gains in confidence that have helped underpin spending.

The Standard & Poor’s 500 Index has climbed 15.2 percent so far this year, closing on May 21 at its highest level on record. The S&P/Case-Shiller index of property values increased 10.9 percent in March from the same period in 2012, the biggest 12-month gain since April 2006, a report showed May 28.

Record Wealth

Household wealth jumped to a record in the first quarter, exceeding its pre-recession peak for the first time, the Federal Reserve reported last week.

That is giving confidence a boost. The Thomson Reuters/ University of Michigan consumer sentiment index held at a six-year high of 84.5 percent this month, according to the median forecast of economists surveyed by Bloomberg before a preliminary report due June 14.

Growing car sales may have helped manufacturing output improve last month, economist project data from the Fed will show the same day.

Industrial production, which measures output at mines and utilities in addition to factories, climbed 0.2 percent in May after a 0.5 percent drop the previous month, according to the Bloomberg survey median. Manufacturing, which makes up 75 percent of total production, is projected to advance 0.2 percent in May after falling in the previous two months.

Inventories Lean

While the payroll tax increase and federal spending cuts have been “primarily felt” in the manufacturing sector, those businesses have used that weak period to “trim their inventory levels a little bit, so that’s going to give them leverage on the other side as demand gains its momentum,” said Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit.

Other reports this week may show there is little inflation, according to economists surveyed.

Import prices were little changed in May, economists project ahead of June 13 data from the Labor Department. A report released the following day may show wholesale prices rose 0.1 percent last month after two straight declines.

                     Bloomberg Survey
                        Release    Period    Prior     Median
Indicator                 Date               Value    Forecast
Retail Sales MOM%         6/13      May       0.1%      0.4%
Retail ex-autos MOM%      6/13      May      -0.2%      0.3%
Retail exauto/gas MOM%    6/13      May       0.2%      0.3%
Initial Claims ,000’s     6/13     8-Jun      346       345
Business Inv. MOM%        6/13     April      0.0%      0.3%
Import Prices MOM%        6/13      May      -0.5%      0.0%
Import Prices YOY%        6/13      May      -2.6%     -1.4%
PPI  MOM%                 6/14      May      -0.7%      0.1%
Core PPI MOM%             6/14      May       0.1%      0.1%
Ind. Prod. MOM%           6/14      May      -0.5%      0.2%
Manu. Prod. MOM%          6/14      May      -0.4%      0.2%
U of Mich Conf. Index     6/14     June P     84.5      84.5
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