Stimulus Checks Spur Spending, Retail Sales

June 17, 2008--The stimulus payments spurred consumers to increase their spending in May, as retail sales rose. Also in May, the Consumer Price Index recorded an increase on the heels of a spike in energy prices. Finally, bargain shoppers appeared to boost the housing market as many foreclosed homes were bought in May, causing an unexpected rise in pending home sales.

 

Retail Sales
In May, total retail sales rose 1.0%, after a revised gain of 0.4% in April (originally reported as a 0.2% drop). Sales at gasoline stations (2.6%), building supply stores (2.4%), and nonstore retailers (1.6%) fueled the overall growth in May's retail sales, but numbers were strong across the board. Core sales--which exclude sales made at gasoline stations and auto dealerships--also posted a 1.0% increase. The strong growth indicates consumers are spending their stimulus rebates faster than earlier data indicated. On a year-to-year basis, top-line retail sales increased 2.5%, while core sales are up 3.7% for the year.

 

Consumer Price Index
The consumer price index (CPI) rose 0.6% for the month in May, after increasing 0.2% in April. May's reading was higher than anticipated. As expected, the largest single increase was in energy prices, as they surged 4.4% in May. The core CPI, which excludes food and energy prices, inched up 0.2% for the month. On a year-ago basis, the top-line CPI has increased 4.2% while the core CPI is up 2.3%. So far, inflation in food and energy prices has not led to higher service and durable goods, or labor inflation. While the economy remains weak, the Fed will see no need to raise interest rates in reaction to inflationary pressures.

 

Pending Home Sales
The index for pending home sales increased 6.3% in April to 88.2 after falling 1.0% in March. The index is 13.1% lower from its April 2007 level of 99.8. The data suggest that existing home sales should continue to be flat or in outright decline for the next few months, as many of April's sales were on foreclosed properties.