A small gain in retail sales for May

June 18, 2024

Retail sales came at 0.1% in May; that followed a downwardly-revised April of -0.2%. The soft May number was a surprise given that the Visa spending index was up 2.7%, but overall credit card usage has been falling in 2024. March was also revised down but still relatively strong at 0.5%. The retail sales index does not adjust for inflation; however, with the softer CPI numbers in May, real retail sales came in at 0.1%.

Sales of motor vehicles and parts rose 0.9%, the first increase since February. Sales of vehicles have been soft given higher interest rates, but larger inventories have spurred dealers to bring back discounting. New vehicle prices fell in the May consumer price index, which reflects those incentives and helped dampen the effects of higher rates. Cash sales have risen as high-income households want to avoid the cost of higher rates; not many can do that now.

Excluding motor vehicles, retail sales slipped -0.1%. Furniture and home furnishings fell -1.1% in May and have fallen nine out of the last 12 months as home buying activity slowed in response to higher rates. Consumers put aside home projects for the month, with sales at building materials and garden equipment stores falling -0.8%. Sales at those stores have generally done better than furniture sellers but record-breaking travel during the Memorial Day weekend may have put DIY home renovation projects on hold.

Sales at clothing and accessory stores rose 0.9%, after a stronger 1.8% in April. Clothing prices fell in May for the first time in five months. Sales at health and personal care stores edged 0.1% higher. General merchandise store sales added 0.1% after a large decline of -0.9% in April. Big-box retailers and warehouse stores performed better than department stores once again. The largest retailers have begun to roll back prices to make up what they lose on margins with volumes.

E-commerce sales fell -2.2%, the largest drop since July 2021. Sales at online stores are still up 7.8% since last year and are outperforming overall retail sales, which are up 2.3% year-over-year.

Sales at restaurants and bars were down -0.4% in May, erasing April's gains. Much of the post-pandemic excitement for eating out has been exhausted given higher prices; prices for food away from home were up 0.4% in May and 4% year-over-year.

Core real retail sales, which feed into the calculation of GDP, rose 0.8% in May, strongly outperforming the overall index. However, April was revised significantly lower than what was implied with the initial release. Taken together, the two months imply little movement from the baseline in personal consumption expenditures. Consumption is expected to hold near the pace of the first quarter in the second quarter.