US retail sales rebounded by a record 17.7 per cent in May as American consumers began spending and states gradually reopened their economies following the pandemic lockdowns.
It was the biggest monthly gain on record, dating back to 1992. The rise surpassed the October 2001 reading of 6.7 per cent and followed a decline of 14.7 per cent in the previous month. It was also more than double economists’ expectations of an 8.2 per cent increase.
Sales of clothing and accessories, electronics and appliances, sporting goods, home furniture and motor vehicles all surged last month after steep declines in April.
So-called control sales, which strip out more volatile items such as food, petrol and building materials, rose 11 per cent, also ahead of expectations.
Despite the monthly surge, retail sales were down 6.1 per cent from the same period a year ago.
The data follow indications from department store chains Macy’s, Kohl’s and Nordstrom last week that sales at reopened stores were improving from their depths, while monthly auto sales also climbed in May from the previous month.
The increase in spending came as 2.5m Americans returned to work last month and as household incomes were aided by federal support in the form of direct deposits to bank accounts, expanded unemployment benefits and the Paycheck Protection Program aimed at keeping employees on the payroll.
The figures were cheered by US president Donald Trump who wrote on Twitter: “Wow! May retail sales show biggest one-month increase of ALL TIME, up 17.7%. Far bigger than projected. Looks like a BIG DAY FOR THE STOCK MARKET, AND JOBS!”
US stocks were set to rally on Tuesday and the data gave the S&P 500 an extra boost. S&P 500 futures were up by 1.9 per cent ahead of the data release and the index opened 2.6 per cent higher.
“The key point here is that it’s now pretty easy to imagine a full reopening of the economy taking all components of retail sales back to their pre-Covid level by, say, July, with the exception of food service, where capacity constraints will hold down sales for the foreseeable future,” said Ian Shepherdson, economist at Pantheon Macroeconomics.
However, he noted that after July “much depends on what Congress does to the enhanced unemployment benefits, currently scheduled to end at the end of the month”.
To date, the administration has been opposed to extending unemployment payments based on the argument that the financial support measures are a disincentive for a return to work.
Mr Shepherdson said that if benefits ended “with millions of people still unemployed, sales will drop back”.
A separate report from the Federal Reserve showed manufacturing was also gradually recovering, with industrial production up by 1.4 per cent higher in May — rising for the first time in three months. However, output remained “15.4 per cent below its pre-pandemic level in February”.
While the easing of social distancing restrictions boosts an economic recovery, weak demand, supply chain disruptions, low oil prices and uncertainty are expected to continue to weigh on the industrial sector.
“The recovery will likely be two-phased: a shortlived, partial snapback in output, followed by a sluggish and extended rebound,” said Gregory Daco, economist at Oxford Economics.
While America has been gradually rebooting its economy since May as coronavirus cases slowed, the outbreak has spread in western and southern states that were among the earliest to reopen, heightening fears about another round of shutdowns.
However, both US Treasury secretary Steven Mnuchin and White House economic adviser Larry Kudlow have said in recent days that the US cannot shut down the economy again.