INDICATOR: May Retail Sales

KEY DATA: Sales: Down 0.2 percent; Excluding Vehicles: Down 0.4 percent; Gasoline: Down 2.2 percent

IN A NUTSHELL: “Consumers have taken an early summer vacation from shopping, maybe.”

WHAT IT MEANS: Retail sales eased in May, helped in no small part by a large decline in gasoline purchases. Gasoline prices were down sharply and the retail sales numbers don’t account for price changes. It is likely that demand actually rose but people didn’t pay as much because of the cost cuts.

There were other issues in this report that were weird and I really don’t know what to make of it.

For example, vehicle sales were reported up while the sales rate in units was down sharply. Building supply stores saw their demand crater despite great weather. Did people really stop planting? Why did we shop the Internet as if it were Black Friday? And while we went to furniture, department and electronics and appliance stores, we didn’t hit the restaurants while we were out.

So, we had strong sales of vehicles, appliances, electronics, furniture, and clothing and on the net but weakness in gasoline, building materials, building supplies and general merchandise. Does anyone see a clear pattern in that? I don’t.

MARKETS AND FED POLICY IMPLICATIONS: This was a report that does not shed nearly as much light as you would think. When you consider all those components that were up, you would think spending was breaking out.

It is hard to say that consumption is tanking when big ticket items such as vehicles, electronics and furniture are on the rise. But then you ask why were vehicle sales positive and what made households suddenly go out and by flat screens when they had been boycotting those products for so long.

Basically, this is a soft report that may not foretell a whole lot. Undoubtedly, spending is moderating and consumption will not be as great a kicker to second quarter GDP growth as it was in the first quarter. But I don’t think you can conclude that households have become really cautious.

Regardless, investors cannot be happy with this report though Europe and Greece in particular are at the top of the most watched list.

As for the Fed, weaker spending numbers will put more pressure on the monetary authorities to implement QE3, so watch for rising calls.

Equity market people are dying for another round as the Fed has been the biggest gift to equity prices since people actually thought dot.coms were real. I don’t think more liquidity is coming unless Europe crashes.