Americans are starting to spend more of their tax cuts. But some of that increase is due to higher prices on products affected by U.S. tariffs.
Retail sales were strong in May, rising 0.8% from a month earlier, the Commerce Department reported Thursday. It was the biggest one-month jump since November, and a further rebound from the weakness in the first quarter. It looks like the higher take-home pay that many people are getting as a result of the tax cut is flowing into better sales.
The details of the report were mostly good. True, a 2% increase in gasoline-station sales—a consequence of higher fuel prices—were part of the sales strength. But exclude gasoline stations and sales were still up a robust 0.7%.
One thing that did stick out in the report, however, was a 2.4% gain in sales at building material and garden equipment and supplies dealers. The big home improvement chains have said higher lumber prices, which hit record levels last month, have helped boost sales
The U.S. relies heavily on imported lumber, particularly from Canada, and the tariffs of around 20% that the White House levied on Canadian lumber last year haven’t changed that dynamic. So buyers have had to pay up. On Wednesday, the Labor Department reported that wholesale prices for softwood lumber rose 6.4% in May from April, and Thursday it reported that imported lumber prices rose 6%.
Rising lumber prices are a problem for home builders and homeowners, but for the overall economy they aren’t that significant. They are evidence that tariffs can affect the economy, which is particularly important at a time when inflation is picking up. A new wave of tariffs on Chinese goods, expected as soon as Friday, means that what’s happening with wood may be a taste of what is to come.
Write to Justin Lahart at justin.lahart@wsj.com
