US retail sales, factories slip in May, and now oil jumps in June

There were a couple of bits of not-good economic news on Tuesday, starting with a sizable drop in retail sales for May.

Retail sales dropped by 0.9% in May according to the Census Bureau, worse than the 0.6% contraction that had been estimated by economists surveyed by Dow Jones. Excluding automobiles, sales last month eased by 0.3%, underperforming the Street’s expectation for a 0.1% increase. Gas station sales slid 2% in the month, which can reflect both lower prices but possibly slower economic activity.

Autos were a big reason behind the drop in May, as they fell a seasonally-adjusted 3.5% last month, which reversed all the pre-tariff gains that happened in March and April, and dropped sales amounts back to where they were in October.

We've also seen "core" retail sales (which doesn't include gasoline or the auto sector) flatten out in the last two months as the Trump trade policies bounced around.

Then later today, we got information that industrial production went down in May, with factory output barely growing last month. That's despite a big jump in autos being built with pre-tariff components.

U.S. factory production barely rose in May as a surge in motor vehicle and aircraft output was partially offset by weakness elsewhere, and the outlook for manufacturing remains clouded by tariffs.

Manufacturing output edged up 0.1% last month after a downwardly revised 0.5% decline in April, the Federal Reserve said on Tuesday. Economists polled by Reuters had forecast production rebounding 0.2% after a previously reported 0.4% drop. Production at factories increased 0.5% on a year-over-year basis in May….

Motor vehicle and parts output accelerated 4.9% last month after declining 2.3% in April. Production of aerospace and miscellaneous transportation equipment increased 1.1%. But output of fabricated metal products, machinery and nonmetallic mineral products all posted declines of at least 1.0%.

Durable manufacturing production rose 0.4%. Nondurable manufacturing production dropped 0.2%, pulled down by decreases in the output of printing and support, petroleum and coal as well as food, beverage and tobacco products.

Not only is it bad that overall industrial production continues to slowly deteriorate, with durable goods production down 0.2% outside of autos and auto parts, but what happens next month when the pre-tariff auto products and related items have rolled off the factory floor? It seems unlikely there would be continued demand to keep these products moving, especially with purchases already being pulled forward earlier this year and sloughing off now, so that indicates a strong chance of a Q3 slowdown in the auto sector to me.

The bad overall spending and output data puts a damper on last week’s good news of low inflation for May, both for consumers and producers (+0.1% for both). Those inflation figures seem likely to rise in the near future, as the tariffed products are assembled in factories and the higher costs are attempted to be passed onto consumers.

And now we have further inflationary pressures looming, give that oil price futures have jumped by 23% in June, with tensions rising again in the Middle East and Trump shooting his mouth off.

So watch for prices to rise at the pump sooner than later, and you’ve probably already seen some of that in your neighborhood. That's not going to help the economy in a time when most American consumers were already gloomy, and have been slowing their spending over the last 2 months.