Bad news in this morning’s U.S. retail sales number but not as bad as it seems.
The all-in, headline number showed retail sales plunging by 1.2% in May from April’s levels. If you discount the downturn that resulted when the cash for clunkers program ended, this is the worst drop in retail sales since the 1.5% plummet in March 2009.
But most of the drop came from a big 9.3% drop in sales of building materials from April levels. Sales of building materials had soared by 8.4% in April as the end of the homebuyers tax credit spurred a big increase in home improvements. (The explanation here is that home sellers spruced up homes before final sale and home buyers made improvements after they bought.)
Take out that category—and volatile auto and gasoline sales—to get what’s called the core sales number and?
May was actually mildly positive with core retail sales up 0.1%. Sales of general merchandise and clothing climbed by 0.3% and 2.0%, respectively.
Nothing terribly surprising in that core number, which is why financial markets aren’t showing much of a reaction. Retail sales are likely to stay weak until employment picks up, economists keep telling us. From that perspective May is just about that the PhDs ordered.