Retail: May Should Be Even Stronger

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Expect retail sales to pick up in May, after a 10.4% rise in March and a modest 0.3% decline in April. More states and cities are lifting restrictions now that infection rates have continued to fall. Consumers are ready to respond to the opportunity. Retail sales excluding gasoline should rise 18% this year, and 8.6% for all consumer spending. All this spending is likely to boost yearly GDP growth to 6.6% at least.

All sales categories are benefiting from the surge, and have surpassed prepandemic spending levels, with the exception of restaurants. The strongest-growing sectors over the past 14 months have been sporting goods stores, e-commerce, building materials and motor vehicles. Restaurant sales will likely show the strongest growth over the next several months as more restrictions are lifted. Spending on meals out and on services will likely depend on progress in vaccinations. 59% of adults have received at least one vaccine dose so far.

Spending should continue to show strength during the rest of the year, as high savings and growing employment income take over from the initial burst of spending fueled by stimulus checks. Also, federal aid to state and local governments will reinstate more of these lost jobs, leading to more spending by rehired workers. Finally, enhanced unemployment benefits to a sizable group of laid off workers are scheduled to continue until September 6.