Expiring Tax Credits & Retail Sales: Not a Good Mix in May

Home improvement storesThe end of homebuyer tax credits left a ripple effect: an unexpected tumble in retail sales in May led by a 9 percent decline in purchases at building materials stores.
The Commerce Department reported total retail sales dropped 1.2 percent in May after increasing 0.6 percent in April. Economists had projected a rise of 0.2 percent in May.
It was the first drop in U.S. retail sales in eight months.
The expiration of tax credits for new homebuyers and repeat buyers was April 30. The aftermath has also led to declines in home sales and mortgage applications – as other market indicators have shown in recent days.
There was some good news on the economic recovery front Friday. Consumers seem to be   more optimistic – despite the recent signs of a sluggish recover, including a pullback in share prices.
The Thomson Reuters/University of Michigan’s Surveys of Consumers sentiment index increased to 75.5 early this month from 73.6 in May. That was higher than expected.
The decrease in retail sales was skewed by the building materials plunge. Only five of 13 major categories showed declines last month.
The 9.3 percent plunge at home improvement/materials stores followed an 8.4 percent jump in April and a gain in March – both of which may have been a result of a surge in appliance sales tied to the government’s stimulus package. The stimulus included rebates for purchases of more energy-efficient products.

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