Kiplinger’s Economic Outlooks are written by the staff of our weekly Kiplinger Letter and are unavailable elsewhere. Click here for a free issue of The Kiplinger Letter or to subscribe for the latest trends and forecasts from our highly experienced Kiplinger Letter team.
Retail sales excluding gasoline and motor vehicles rose at a fast pace for the fourth month in a row, growing by 0.5% in May. Yet the strength in May was narrow, concentrated in ecommerce (up 1.5%), health and personal care (0.6%), miscellaneous (2.3%) and home furnishings (1.0%), the latter rebounding only partly from a drop in April. Noteworthy are the five consecutive months of ecommerce gains of 1% or better. Ecommerce now accounts for 29% of retail sales excluding motor vehicles and gasoline. Motor vehicle sales rose 1.1%, rebounding from an April decline. Restaurant and food service sales dipped 0.1%, pausing after a strong 0.9% rise in April. Spending on services excluding dining grew by a moderate 0.4% in April, after rising 0.5% in March. (April is the latest month for which services spending data other than dining are available. May data will be available on June 25.)
Consumers in June are benefiting from the tailwind of falling gasoline prices. They are down 10% from May, though still 42% higher than they were at the beginning of the year. High gasoline prices may eventually cause consumer spending to slow down a bit, simply because savings rates are low and households will need to rebuild their financial reserves by curbing discretionary spending. Pricey gasoline and airfares (due to high jet fuel costs) may also be a drag on travel and recreation spending this summer. Consumers have so far kept their spending high, despite the rise in gasoline costs and accompanying decline in inflation-adjusted personal income, by dipping into their savings. The personal savings rate hit a low of 2.6% in April, from an average of 4.6% last year. Look for the rate to rise to at least 4.0% by the end of the year. That translates to about $340 billion less consumer spending, equal to 1% of GDP. However, if the stock market continues to do well this year, then investment gains could supplement savings among affluent households, enabling the low savings rate to continue for a while.
