Retail Sales and Economic Outlook
U.S. retail sales barely rose in May; meanwhile, April’s data was revised lower, indicating weak Q2 economic activity.
Inflation and higher interest rates are forcing households to prioritize essentials and cut back on discretionary spending.
Last month’s weak retail sales reinforced economists’ expectations that the Federal Reserve might begin cutting interest rates in September.
U.S. central bank officials last week saw the anticipated rate cut delayed to perhaps as late as December.
U.S. central bank officials last week saw the anticipated rate cut delayed to perhaps as late as December.
“Admittedly, we don’t expect a full-blown slump in consumption but, at the margin, even a modest slowdown in consumption growth and consequently GDP growth too could be enough to tip a finely balanced Fed in favor of a rate cut in September.”
Detailed Retail Sales Breakdown and Economic Indicators
Retail sales rose 0.1% last month, but April’s drop was revised from unchanged to -0.2%, the Census Bureau said Tuesday.
Economists expected a 0.3% May retail sales gain, but recent figures have been distorted by an early Easter.
However, sales growth is slowing as banks tighten credit, while lower-income borrowers increasingly struggle with loan payments.
Although the labor market is solid, finding new jobs is harder, and wage increases are moderating.
Savings have also been whittled down. Still, the pace of spending is likely sufficient to sustain the economic expansion.
Last week, the Fed kept its interest rate at 5.25%-5.50%, projecting only one rate cut, but maintained GDP growth estimates.
Retail sales were mixed; gasoline sales dropped 2.2%, building materials fell 0.8%, and dining out slipped 0.4% after April’s gain.
Furniture store sales fell 1.1%. However, motor vehicle and online sales rose 0.8%, while sporting goods sales increased 2.8%.
Receipts at electronics and appliance outlets gained 0.4%, while those at clothing retailers increased 0.9%.
Core retail sales rose 0.4% last month, transitioning from a revised 0.5% drop in April, previously reported as a 0.3% decline.
Core retail sales, reflecting consumer spending in GDP, were revised down in April, indicating moderate Q2 spending and possible GDP trim.
Consumer spending boosted first-quarter growth to 2.0%, but second-quarter estimates soar to 3.1%.