U.S. retail sales stumble as inflation bites

People shop at a supermarket as inflation hit consumer prices in Manhattan, New York, U.S., June 10, 2022. REUTERS/Andrew Kelly/File Photo

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  • Retail sales fell 0.3% in May; April sales revised down
  • Core retail sales unchanged; Reduced April sales gain
  • Second-quarter GDP growth estimates cut from data

WASHINGTON, June 15 (Reuters) – U.S. retail sales unexpectedly fell in May as motor vehicle purchases fell amid widespread shortages and record gasoline prices deflected spending other goods.

The first drop in sales in five months reported by the Commerce Department on Wednesday also suggested that high inflation was starting to hurt demand. This followed in the wake of major retailers like Walmart (WMT.N) and Target (TGT.N) slashing their profit forecasts due to cost pressures.

Yet weak retail sales will not deter the Federal Reserve from its aggressive course of monetary tightening to bring inflation back to its 2% target. The U.S. central bank is expected to raise its key rate later Wednesday for the third time this year, with a 3/4 percentage point hike seen as likely. Read more

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“While high personal savings and strong job and wage growth are helping, consumers are facing strong headwinds from four decades of high inflation, rapidly rising borrowing costs and the equity bear market,” said Sal Guatieri, senior economist at BMO Capital Markets in Toronto.

“The Fed will have to see an extended period of weakness in domestic demand and likely in labor markets before breathing a sigh of relief on the inflation front.”

Retail sales fell 0.3% last month. April’s data has been revised down to show sales rose 0.7% instead of 0.9% as previously reported. Economists polled by Reuters had forecast retail sales to rise 0.2%, with estimates ranging from a 1.1% decline to a 0.5% increase.

Retail sales are primarily goods and are not adjusted for inflation. Sales rose 8.1% on an annual basis and are well above their pre-pandemic trends, supported by massive savings and rising wages thanks to a tight labor market.

The drop in monthly retail sales was led by revenue at auto dealers, which fell 3.5%, the biggest drop in nearly a year, after rising 1.8% in April. China’s zero COVID-19 policy has exacerbated a global shortage of semiconductors.

Online store sales fell 1.0%. Sales at electronics and appliance retailers as well as furniture stores fell. But sales at building material, equipment and garden supply stores rose 0.2%. Receipts at sporting goods, hobby, musical instrument and book stores rose 0.4%. Clothing store sales edged up 0.1%.

Sales at gasoline stations jumped 4.0%, boosted by record gasoline prices. The national average gasoline price jumped to a record high of $4.439 a gallon in May, according to data from the US Energy Information Administration. Pump prices are now around $5 a gallon.

Excluding gasoline, retail sales fell 0.7%. Sales at food and beverage stores rose 1.2%. The National Retail Federation said weak sales underscored the need for the White House to repeal tariffs on Chinese goods.

“Retail sales reflect growing American concern about inflation,” said NRF Chairman Matthew Shay. “Retailers are doing what they can to keep prices low, but we are continuing to call on the administration to repeal unnecessary and costly tariffs on goods from China to relieve pressure on consumers. “

The waning fortunes of the economy were also highlighted by a separate report from the New York Fed showing that manufacturing activity in New York State remained weak in June, with

order books down for the first time in over a year.

Single-family homebuilder confidence fell to its lowest level in two years this month, according to a third report. Read more

Stocks on Wall Street were higher. The dollar fell against a basket of currencies. US Treasury prices rose.

SERVICES ARE BACK IN Vogue

The decline in retail sales also reflects a gradual shift in spending from goods to services. Receipts from bars and restaurants, the only service category in the retail sales report, rose 0.7% last month.

“Consumers may have reached a saturation point for spending on goods and are now turning to higher leisure spending as the summer months approach,” said Will Compernolle, senior economist at FHN Financial. At New York.

Excluding automobiles, gasoline, building materials and food services, retail sales remained unchanged in May. April’s data has been revised down to show that these so-called core retail sales rose 0.5% instead of 1.0% as previously reported.

Core retail sales correspond most closely to the consumer spending component of gross domestic product. As consumers spend more on services, weak retail sales in May and downward revisions to April data suggest consumption slowed in the second quarter. Retail sales account for about a third of consumer spending.

JPMorgan cut its second-quarter GDP estimate to an annualized 2.5% from 3.25%. The economy contracted at a rate of 1.5% in the first quarter. Citigroup, however, warned that retail sales likely overstated the degree to which consumption is slowing.

“Total consumption data released at the end of the month will likely continue to show that some of the slowdown in spending on goods reflects a return to spending on services,” said Veronica Clark, economist at Citigroup in New York.

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Reporting by Lucia Mutikani; Editing by Chizu Nomiyama

Our standards: The Thomson Reuters Trust Principles.

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