Retail sales lost some momentum in May, falling 0.4% month/month (m/m), weaker than the modest gain markets were expecting. Sales in the prior two months were also revised down.
As expected, sales at autos & parts dealers fell by 3.5% m/m. But, autos weren’t the only durable goods category to slow. Sales at furniture (-0.9% m/m) and electronics and appliance stores (-1.3% m/m) both fell.
Sales at gasoline stations were on the rise again in May, up 4.0% m/m, driven entirely by prices, with estimated real sales looking flat in May.
Sales in the “control group”, which excludes motor vehicles & parts, gasoline stations and building materials, and are used in calculating personal consumption expenditures (and GDP), were flat on the month.
Sales gains were pretty soft across the board, clothing up only 0.1% m/m, building materials and garden supplies up 0.2% m/m, and sales at non-store retailers reversing (-1.0% m/m) after a healthy gain in April. When deflated by their CPI category, most of these areas saw sales declines in real terms.
One exception was sales at restaurants and bars, which rose 0.7% m/m. That is a solid gain, but comes after three months of even heartier gains as consumers flock back to in-person dining.
Key Implications
We have long expected retail spending to slow as consumers shift towards services, but May’s retail report was still weaker than expected. Retail sales really only capture the goods side of spending, while it is spending on services like concert tickets and long-awaited vacations that we expect to boost consumer spending in the near-term. The slowing in retail momentum is expected and reflects the normalization in goods spending after huge gains earlier in the pandemic.
Inflation is elevating nominal retail numbers, so the weakness was more pronounced in real terms. The retail report always grabs headlines, but it won’t be holding on to them long today, with the FOMC set to deliver it’s rate decision at 2pm. With market expectations ratcheting up to a 75 basis point hike in the past two days, attention is even more heightened than usual.
