U.S. economy starts long recovery as retail sales post record jump
By Lucia Mutikani
WASHINGTON (Reuters) - U.S. retail sales rose the most in May after two months of sharp declines in store reopening, providing more evidence that the recession triggered by the COVID 19 pandemic was over or over .
The Department of Commerce's Tuesday report followed news earlier this month that the economy created 2.5 million jobs in May. The layoffs are also decreasing and production activity is improving, although production remains at a very low level.
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The increase in retail sales last month made up for 63% of the declines in March and April. However, the road to recovery could be long and difficult, with COVID-19 infections increasing again in some parts of the country. In addition, the Federal Government's increased unemployment controls will expire in July.
Federal Reserve chairman Jerome Powell said on Tuesday to US lawmakers: "Until the public is confident that the disease is contained, a full recovery is unlikely."
Retail sales increased 17.7% last month, the largest increase since the government began pursuing the series in 1992. Sales decreased 14.7% in April. Economists surveyed by Reuters had forecast that retail sales would increase 8% in May.
Retail sales in May decreased 6.1% year over year. Even with the May surge, sales were still about 8% below their February level, so consumer spending and the economy were on their way to their largest decline in the second quarter since the Great Depression. The economy went into recession in February.
"The economy and retail sales bottomed in May and we have a V-shaped first phase of recovery," said Sung Won Son, a professor of business administration at Loyola Marymount University in Los Angeles. "However, it will take some time before we get close to the level of retail sales and economic activity that we had around the turn of the year."
Last month when unnecessary stores reopened in mid-March to slow the spread of COVID-19, Americans flocked to car dealerships and spent more on gasoline, clothing, and restaurants.
Though nearly 20 million people have lost their jobs as a result of the pandemic, record savings and the government's historic tax package of nearly $ 3 trillion offer consumers a cushion of one-time checks of $ 1,200 and generous unemployment benefits. Due to unprecedented economic upheavals, personal savings rose to a record $ 337 billion in April and the savings rate reached an all-time high of 33%.
The recovery in retail sales last month was led by a 44.1% sales acceleration at car dealerships.
Revenue at petrol stations rose by 12.8%. Sales in electronics and household goods stores increased by 50.5%. Clothing store revenues recovered 188% last month. Still, clothing store sales were 63% below the February level.
Furniture store sales increased 89.7%. Revenue in restaurants and bars increased by 29.1%. Spending in hobby, musical instrument and book stores increased by 88.2%. All of these categories saw sales decline in March and April.
Retail sales in online and mail order sales rose by 9.0%. Sales in building materials stores rose by 10.9%.
The increase in demand for automobiles helped boost manufacturing manufacturing by 3.8% in May, according to a separate Fed report on Tuesday after plunging a record 15.5% in April. Manufacturing, which accounts for 11% of the US economy, continues to be hampered by supply chain disruptions.
Cheaper crude oil has made oil and gas drilling unprofitable and has affected demand for heavy equipment.
"We expect a gradual recovery over the next few years, with growth lagging that of the overall economy," said Gus Faucher, chief economist at PNC Financial in Pittsburgh. "A potential upside risk is that companies are deciding to shorten their supply chains and relocate production capacity to the United States due to the pandemic and related disruption to world trade."
Wall Street stocks rebounded on the basis of reports and data showing a reduced COVID-19 mortality rate in a study with a generic steroid drug. The dollar <.DXY> rose against a basket of currencies. US government bond prices fell.
Excluding automobiles, gasoline, building materials and food services, retail sales rose 11% in May after falling 12.4% in April. These so-called core retail sales correspond most closely to the consumer spending component of the gross domestic product report.
Economists expect consumer spending, which accounts for more than two-thirds of US economic activity, to decrease in the second quarter by up to 37% on an annual basis. This could result in GDP falling by around 36% over this period.
Consumer spending declined at a rate of 6.8% in the first quarter, the sharpest decline since the second quarter of 1980. The economy shrank 5% in the January-March quarter, the lowest since the Great Recession in 2007-2009.
Weak GDP this quarter was underlined on Tuesday by other data that showed a decline in corporate holdings in April.
(Reporting by Lucia Mutikani; Additional reporting by Dan Burns; Editing by Paul Simao)
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