Retail sales declined by 1.3% in May, below the median consensus forecast for a 0.8% decline. However, April’s headline reading was revised up to +0.9% m/m from a flat (0.0% m/m) previously, making up for some of today’s loss.
The volatile categories saw mixed fortunes in May. Semiconductor shortages and longer lead times may have limited spending on motor vehicles and parts which declined by 3.7% m/m. Building materials and equipment plunged by 5.9% m/m. Meantime, gasoline stations (+0.7% m/m) and food services and drinking places (+1.8% m/m) rose in May.
Excluding volatile categories, sales in the “control group” used in determining personal consumption expenditures, were down by 0.7%, but April’s reading was revised up to -0.4% (from -1.5% previously).
- Sales at department stores and miscellaneous retailers led the decline, falling by 3.3% and 5.0%, respectively.
- Other categories saw gains, including clothing and accessory stores (+3.0%), health & personal care (+1.8%) and food & beverage stores (+1.0%).
Key Implications
Despite the decline, May’s retail sales are 5.7% above the first quarter monthly average and, with April’s upward revisions, imply a healthy tailwind to economic growth. Drilling down into the details, there is a shift in preferences away from the pandemic winners (auto, building materials, and non-store retailers) towards spending on restaurants, gas and clothing. While the former subtracted 1.2 percentage points from retail sales growth, the latter counteracted with a positive 0.4 percentage point addition.
With roughly $1.5 trillion in excess savings, American consumers’ purchasing power remains strong. Increasingly, however, retail sales will not be the best predictor of overall consumption growth given it’s tilt towards goods spending. As more lockdowns ease, we expect the services sector to take the lead, keeping our spending growth forecast largely unaffected by today’s retreat.
