Consumers apparently felt like they needed some new wheels in May. Retail sales were driven higher by car sales.
But, looking in the rear-view mirror, there's further evidence that the beginning of the year was substantially weaker than first thought. The extent of a springtime bounce is taking on added importance after that first-quarter pothole.
Car-centric spending in May
When we peak beneath under the hood, the retail sales story in May hardly looks like a speedy sports car. The Commerce Department says sales surged 0.3 percent last month. But when auto sales are excluded, the increase was a tepid 0.1 percent. And then, when you take gasoline sales out of the equation, May retail sales were flat. Can you hear the sound of a tire blowout yet?
Put another way, "After spending on a new car and filling up the tank, there was nothing left over for other goods this month," says Lindsey Piegza, chief economist for Sterne Agee.
Taking some of the sting out of the weak May sales reading was an upward revision for the previous month. The government now puts April retail sales at a gain of 0.5 percent.
While noting that the May numbers were softer-than-expected, PNC chief economist Stuart Hoffman says retail sales over the past four months show "a strong rebound after the mostly weather-related retail sales declines in December and January."
First-half of 2014: Not so pretty?
The economy story for the first half of the year is at risk of a re-write with a downward slant. Some economists think the economy contracted at a rate of as much as 2 percent during the first three months of the year.
Diane Swonk, chief economist with Mesirow Financial, warns of revisions in health care spending numbers from early this year. "New estimates of the impact of the Affordable Care Act (which added to growth in the first quarter) are coming in much weaker than first reported and could now take first quarter real GDP down (to) 2 percent on the third revision later this month."
Swonk says, "That means we have a lot more activity to catch up in the second quarter than we initially thought." She says growth might be around 4 percent in the current quarter, which would mean it averaged about 1 percent for both of the first two quarters of the year -- a bit of a downer.
Better second-half story?
What about the rest of the year? As our recently published quarterly economists survey found, the experts think we should see growth of about 3 percent about a year from now. If that actually develops as hoped, it would be a positive development. Nevertheless, it will not have been without plenty of twists and turns in the road for the U.S. economy.
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