Significant Improvement in Retail Sales

The Commerce Department said today that retail sales increased in May by 1% (economists had only expected a 0.5% rise). They also revised upwards April to 0.4% (from a 0.2% loss) and March to 0.5% (from a 0.2% gain). This suggests economic strength because consumer spending represents 70% of GDP.

But the Wall Street Journal claimed that the sales results were due to the recently sent out stimulus checks. The New York Times reported similar sentiments: “The sharp improvement in May was clearly driven by receipt of the first wave of tax rebate payments,” Joshua Shapiro, chief United States economist at the research firm MFR, wrote in a note. “These payments will continue to be a positive factor for the consumer in the next couple of months.”

How do they know the source of consumers' funds? The positive impact that improved consumer retail sales has on the overall economy seems to me to be the real story. GDP for the first quarter was 0.9%. This news suggests that the current quarter's GDP growth will be higher.