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May retail sales could bolster rebound thesis

If there’s been one thing missing from the recent string of strong incoming economic data, it is consumers’ unwillingness to open up their wallets. “The missing piece,” says Brad McMillan, chief investment officer at Commonwealth Financial Network, “is consumer spending.”635525484466911536-AP-Consumer-Spending-001

And that lack of spending shows up in the recent retail sales numbers. In April, retail sales were flat, sparking concern that the first-quarter slowdown might have been due to things other than nasty winter weather. May’s retail sales number out today could show whether consumers are back to their spending ways.

But since then signs of an improving economy have been showing up in the incoming data. The ISM’s May manufacturing number topped estimates. So did May vehicle sales, as did the all-important May jobs report. Add to that better-than-expected readings released Wednesday on small business optimism, job openings and wholesale inventories, and it looks like spending remains the missing link to confirm the economy’s back on track.

“Pretty much everything out there is good,” McMillan says. “But to validate that, the May retail sales number (set for release today) must surprise to the upside.” Economists forecast May retail sales to rise about 1.1% to 1.2%. “Retail sales is not the be-all, end-all, but it is still psychologically important to investors,” McMillan says. “The number doesn’t need to blow the doors off, but it has to (be strong enough) to show that consumers are coming out of their shell and the spring thaw is on.”