U.S. retail sales fell last month May, Commerce Department indicated Wednesday, as consumers pulled back on discretionary spending amid the fastest inflation in four decades and record high gas prices.
May retail sales fell 0.3% from the previous month to a collective $672.9 billion, the Commerce Department said, well shy of the Street consensus forecast of a 0.2% gain and snapping a fourth month run of consecutive gains. The April total was revised lower, to a gain of 0.7%, the Commerce Department report showed, from the original estimate of a 0.9% advance.
Stripping out the auto sector, May retail sales were up 0.5%, the Commerce Department report noted, while stand-alone sales of gasoline surged 4% as prices hit consistent record highs over the month, with data from AAA yesterday showing a record high $5.014 per gallon,
Inflationary pressures remain acute, as well, as the Commerce Department's headline May reading stormed back to 8.6%, the highest in more than forty years, with so-called core inflation rising 5.9%, near the highest since February of 1991.
"It’s very tempting to argue that core sales were weak because people were forced to devote more of their cashflow to pay higher food and gas prices, but it is also true that the recent strength in core sales was unsustainable, and a correction was due," said Ian Shepherdson of Pantheon Macroeconomics. "Even after revisions, sales ex-autos, gas and food rose at a 13.4% annualized rate in the three months to May, compared to the previous three months, so a further slowing is inevitable."
"The real test of people’s willingness to run down some of their savings to offset the inflation hit to their real spending power will come over the next few months," he added. "We expect real spending growth to slow in the third quarter, but we do not anticipate an outright decline."
U.S. stocks pared some of their earlier gains following the data release, with futures contracts tied to the Dow Jones Industrial Average indicating a 266 point opening bell gain and the S&P 500 moving 40 points to the upside.
Benchmark 10-year Treasury note yields eased to 3.37% following the data release while the dollar index was marked 0.16% lower on the session at 105.353 against a basket of six global currencies.
Big U.S. retailers have hinted at deep summer discounts, however, as overstocked merchants look to shift the excess goods they purchased over the tail end of the pandemic.
Target, which cautioned earlier this year that its bigger-than-expected 35% build-up in overall inventories would likely trigger price cuts, said last week that deeper discounts would be needed to shift the excess goods, adding that operating margins would narrow to around 2% over the current quarter before rebounding into the second half of the year.
Citigroup analyst Paul Lejuez noted that average U.S. retail inventories are outpacing sales gains by around 10 percentage points, the widest gap since the pandemic, as retailers struggle to manage both supply chain disruptions, fuel and freight costs, and rapidly shifting consumer habits.
