Consumer Optimism Lifts Retail Sales


The positive economic data keeps pouring in as a strong retail sales report for May suggests consumers, emboldened by a strengthening job market, are growing increasingly optimistic about their financial circumstances.

Taken as a whole, the recent data suggests the economy is bouncing back nicely from a weak first quarter during which economic output contracted.

David Kelly, chief global strategist for JPMorgan Funds, predicted the strong retail sales numbers, citing rising gasoline prices and “a blockbuster month” for sales of cars and trucks.

Retail sales rose by 1.2% in May after an upwardly revised 0.2% gain in April, according to figures released Thursday by the Commerce Department. April sales were previously reported to have been unchanged. March sales were also revised to show them rising 1.5% instead of 1.1%.

Kelly said the surge in economic momentum as reflected in the recent data could lead the Federal Reserve to pull the trigger on interest rate hikes at their September meeting, despite recent calls from both the International Monetary Fund and the World Bank to hold off until 2016.

“All-in-all, and contrary to assertions by some Fed officials last week, the U.S. economy is bouncing back from a weak first quarter,” Kelly said. “Clearer evidence of this will likely not come soon enough to prompt the Fed to take any action at their mid-June meeting. However, they are unlikely to heed the rather dubious advice of the IMF to wait until 2016 either.”

Kelly said that “by September of this year, the Fed should have run out of excuses for any further delay.”

Last week the Labor Department reported that the economy gained 280,000 new jobs in May, far more than expected, and that the unemployment rate rose to 5.5% because thousands of people joined the workforce once again hopeful of finding a job.

The Labor Department reported earlier this week that the number of job openings at the end of April stood at 5.4 million, the largest number since the government started keeping track in late 2000.

Hiring fell to 5 million in April down from 5.1 a month earlier, a drop economists said occurred because employers are having difficulty finding the qualified workers they are seeking.

Most importantly, perhaps, the Labor Department reported that wages in May rose 2.3% year-over-year, not quite the 3% annual growth rate the Fed is seeking but a clear sign that the tightening labor market is starting to push wages higher.

Higher wages and a belief that a better job can be obtained is apparently having a positive impact on consumer spending, which bodes well for the much-anticipated second half rebound. Consumer spending accounts for 70% of the U.S. economy.