Gasoline Boosts May Retail Numbers

This morning the U.S. Census Bureau announced that May retail sales increased 0.5% from April. The rise in gasoline prices played a big role in May's sales increase. Driving the increase were gas stations, auto/auto parts, food/beverage, and clothing.

Still, not all areas of retail reported sales increases. Department stores, electronics, furniture, and sporting goods all experienced sales declines in May.

And compared to May 2008, this retail sales report doesn't look very good. May retail sales fell 10.8% compared to May 2008. Though the best performers from April to May were gasoline stations and autos, gasoline stations sales were down 33.8% year-over-year, and auto/auto parts sales were down 19.6%. The best year-over -year performers were health/personal care +5.0%, restaurants +1.2%, and food/beverage +0.6%.

The full report can be read here.

The market's initial reaction to this report is positive because this is another data point that shows that retail sales have stabilized and are no longer in free-fall. Even so, there is nothing in the May retail sales report that points to an uptick in consumer discretionary spending anytime soon.

At best, retail sales remain at current levels until the economy finally improves. However, if gasoline prices continue to rise, consumers will find themselves with fewer dollars to spend on discretionary items, and that will put a lid on a recovery in consumer spending. Rising gas prices also sets the stage for disappointment in the second half of the year, as retailing stocks are already pricing in a second half rebound.

That said, there are retailers that should benefit from rising gas prices. Discounters, grocers, and wholesale clubs will see higher store traffic as more consumers seek out lower-cost consumables and staples. And those stores that sell discounted gasoline could see an even bigger increase in traffic.

Stocks to keep an eye on include Costco (COST - Snapshot Report), Wal-Mart (WMT - Snapshot Report) and Kroger (KR - Analyst Report). All are defensive in nature and have gas stations at many of their stores.