Retail Sales rose 0.5% in May from April (seasonally adjusted) both in total and excluding auto sales. From a year ago, they are down 10.8% in total and down 7.3%, stripping out autos. The rise in May more than erased a 0.2% decline in April (revised from an initial read of -0.4%).

On the surface this looks like good news. However, a total of 62.8% of the increase in total retail sales for the month came from a 3.6% increase in sales at gas stations. Since the retail sales numbers are not adjusted for price changes, this means that most of the increase was simply a reflection of the sharp increase in gasoline prices for the month — an increase that has continued so far in June.

While this is good news for the big oil companies like Exxon (XOM) and Chevron (CVX) it is not particularly good news for the economy. The only other big increase was a 1.3% rise at building material stores, which confirms the positive comments made recently by Home Depot (HD). Relatively minor increases were also recorded by drug stores (up 0.7%) and grocery stores (up 0.4%). If you want to invest in retail, well-run, stable demand-type stores like Walgreen’s (WAG) and Kroger’s (KR) are probably the first places I would look in this environment.

The more discretionary stores saw sales decline. Electronics stores recorded a 0.5% decline for the month, sporting goods & book stores fell 0.8% and department store were down 0.7%. This is not a picture of consumers loosening up their purse strings.

On a year-over-year basis, both real and nominal retail sales are still very weak as is shown in the chart below (from http://www.calculatedriskblog.com/), but there has been some stabilization in the year-over-year rate of change since the start of the year after sales fell off a cliff in late 2008. I would interpret this repot as a sign of the economy stabilizing at a low level, not as evidence of a rebound. Still, that is better than falling off a cliff.

Read the full analyst report on “XOM”
Read the full analyst report on “CVX”
Read the full analyst report on “HD”
Read the full analyst report on “WAG”
Read the full analyst report on “KR”
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