Retail Sales Growth Stalls in May

Retail sales in May increased at a slower pace than anticipated, driven by high interest rates and persistent inflation. The sales rose by 0.1%, falling short of the 0.3% expected by economists. In contrast, April saw a revised decline of 0.2%, according to the Commerce Department.

Excluding autos and gas, retail sales also grew by 0.1%, missing the 0.4% forecast but better than the 0.3% decline observed in April. Paul Ashworth, Chief North America Economist at Capital Economics, remarked that the latest retail sales data indicate “consumers are facing some struggles.”

“The weak May retail sales data align with our view that GDP growth remains underwhelming in the second quarter after a disappointing first quarter,” Ashworth added.

The report revealed gasoline stations led the declines with a 2.2% drop from the previous month, while sales at furniture and home stores decreased by 1.1%. On the other hand, sporting goods and hobby stores experienced the most significant gains, with sales increasing by 2.8%.

Michael Pearce, Deputy Chief US Economist at Oxford Economics, noted, “Consumer spending is slowing due to moderated real income growth and some consumers facing credit constraints amid high interest rates and increased credit card usage.”

Some analysts minimized the concerns. The retail sales control group, which excludes volatile categories and impacts the quarterly GDP reading, rose by 0.4% in May. Matthew Luzzetti, Chief US Economist at Deutsche Bank (NYSE:DB), described it as a “decent print,” noting the control group has seen its largest gains since December over the past three months.

“The consumer is certainly slowing,” Luzzetti stated. “But I don’t view it as a concerning trend; it appears to be a return to a more normal economic pace.”

This report follows the Federal Reserve’s revised Summary of Economic Projections last week, which indicated an expected interest rate cut later this year. The Fed’s commitment to maintaining high interest rates longer than anticipated has raised concerns among economists about a potential significant slowdown in the US economy.

Allianz Chief Economic Adviser Mohamed El-Erian told Yahoo Finance that delaying a rate cut until December could result in a more pronounced economic slowdown than necessary.

Market expectations for a September rate cut have increased, with the CME FedWatch Tool showing a 67% chance of a cut, up from 52% the previous week.