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Key Takeaways
- Retail sales were slower than expected in May and April’s revised numbers showed a decline in consumer spending.
- Combined, the past two months indicate that consumers are slowing their spending hot streak.
- Consumers spent more online and less on furniture in May.
Stores have been doing less business as U.S. consumers’ budgets strain to keep up with inflation and high interest rates.
Retail sales rose 0.1% in May from April, the Census Bureau said Tuesday. That was less than the 0.2% increase that forecasters had expected according to a survey of economists by Dow Jones Newswires and The Wall Street Journal. On top of that, April’s sales figures were downwardly revised to a 0.2% decline rather than staying flat as the bureau initially reported in May.
It could be the beginning of a reversal in the strong consumer spending that has buoyed the economy during the pandemic recovery.
“Overall, the May retail sales data are consistent with a consumer that is only gradually losing its swagger,” wrote Wells Fargo economists Tim Quinlan and Shannon Seery Grein.
Consumer Spending is Slowing Down
The data suggests retail spending is settling into a slower pace of growth, though not collapsing. The high inflation of the past few years—not to mention high interest rates on credit cards and other consumer loans—has dragged down people’s ability to spend. And, a recent uptick in the unemployment rate may also be pushing people to tighten their belts.
“Given slowing job growth and lower savings, and the constant pressure from inflation to spend more judiciously, it’s no surprise that retail spending is downshifting,” Robert Frick, corporate economist with Navy Federal Credit Union, wrote in a commentary. “We can expect retail spending to be fairly flat for the foreseeable future.”
Spending Online is Up, While Buying Furniture is Down
There were a few bright spots in the report from the perspective of household budgets. One reason for relatively sluggish sales growth was that gas prices fell in May—and that pushed down the total amount of dollars that people spent. Spending at online stores jumped 0.8% over the month and is up 6.8% since last year.
The sluggish housing market, which is virtually gridlocked because of high mortgage rates , may be contributing to the retail sales slowdown. Slow home sales mean fewer people are buying furniture for their new digs—spending at household furnishing stores fell to its lowest since December 2020.