May Retail Sales Fall 1.3 Pct, Muddling Outlook For Consumer-Led Recovery

Reports of a red-hot consumer-led rebound were doused Tuesday (June 15) after the Commerce Department reported that May retail sales slid 1.3 percent from the prior month, as demand for building supplies, automobiles and electronics weakened.

According to the new data, which pegged sales at U.S. retail and food service businesses at $620 billion last month, consumer purchasing was somewhat mixed, as rising prices for items such as lumber, cars and furniture appear to have crimped consumers’ appetites. At the same time, the report showed pent-up demand for new clothes and dining out still growing.

Officially, the 5.9 percent month-on-month drop in Building Materials, Garden Equipment and Supplies marked the single-largest retreat in May, followed by a 5 percent drop in Miscellaneous Retailers, a 3.7 percent dip in Motor Vehicles and Parts and a 3.4 percent decline in Electronics and Appliances.

On the plus side and defying the downtrend, Clothing and Accessories led all categories last month with a gain of 3 percent, followed by 1.8 percent increases in both the Food Service and Drinking Places and Health and Personal Care categories, with Department Stores posting a 1.6 percent advance.

Muddled Expectations

While the May results were weaker than the average 0.7 percent retreat economists were expecting, the surprisingly weak April data, which initially showed flat sales, were revised higher to reflect a 0.9 percent increase, and some follow through from the huge stimulus check-driven surge in March.

The new government data also are in sharp contrast with private industry expectations that have seen groups like the National Retail Federation projecting as much as a 13.5 percent increase in sales this year, a gain that would mark the fastest growth for that industry since 1984.

“We are seeing clear signs of a strong and resilient economy,” NRF Chief Economist Jack Kleinhenz said last week in unveiling the group’s bullish outlook. “Incoming data suggests that U.S. economic activity continues to expand rapidly, and we have seen impressive growth. Most indicators point toward an energetic expansion over the upcoming months and through the remainder of the year.”

Short Versus Long View

To be sure, short-term results can be lumpy and are frequently changed after the fact, a reality that can distort downtrends or hide from view progress that actually exists.

At the same time, the Commerce Department points out that, while sales fell 1.3 percent last month, total retail sales were up 28 percent from May 2020. Other notable annualized gains included a 200 percent snap-back by Clothing and Accessories stores, a 70 percent increase in sales at Bars and Restaurants, and 66 percent advance in Furniture and Home Furnishings.

“The reopening of the economy is likely to mean that some discretionary spending on services will start to compete with purchases of goods, which dominate the retail sales report,” Lou Crandall, chief economist at Wrightson ICAP in Jersey City, told Reuters, noting that total retail sales “are far above the pre-pandemic trend.”