EconoFACTS

June 18, 2024 | 09:48

U.S. Retail Sales Even Weaker Than We Thought

Economist

Chief U.S. Economist and Managing Director
Economics

Scott Anderson is BMO’s Chief U.S. Economist and Managing Director. He analyzes and forecasts U.S. national and ... (Read more)

Scott Anderson , Ph.D.

Chief U.S. Economist and Managing Director
Economics

Scott Anderson is BMO’s Chief U.S. Economist and Managing Director. He analyzes and forecasts U.S. national and ... (Read more)

U.S. retail sales are visibly downshifting in the second quarter with the advanced estimate for May coming in at a lackluster 0.1%, weaker than our forecast of 0.2%, and well-below the consensus call of 0.3%. A big 2.2% decline in gasoline station sales on falling gas prices drove a lot of the sales weakness last month. Gas sales alone subtracted 0.17 percentage points from headline retail sales growth. Outright sales declines were also seen in furniture (-1.1%), building materials (-0.8%), eating and drinking establishments (-0.4%), and food and beverage stores (-0.2%) as demand and price inflation eases. Sales at department stores were flat with general merchandise store sales up a modest 0.1% last month. It wasn’t all downbeat news, however, as a few retail categories managed solid sales gains last month, including sporting goods (+2.8%), apparel (+0.9%), and electronics (+0.4%).

The biggest surprise from this report was the sharp downward revision for April sales. Turns out April retail sales fell 0.2% compared to the previously reported unchanged reading. The retail sales control group, comprised of total retail sales less food services, auto dealers, building materials, and gas stations, and is used to help estimate consumer spending in the quarterly GDP report, plunged a bigger than previously reported 0.5% in April, before recovering to a positive 0.4% growth pace in May.

Retail sales have been volatile month-to-month so far this year as more consumers struggle under the weight of rising prices, higher interest rates, and dwindling savings. Some investors may be reluctant to read too much into today’s uninspiring report, but, taken together with other weaker than expected economic indicators of late, a clearer picture of decelerating demand is starting to take shape in the second quarter.

Bottom Line: The retail sales report, along with softening labor market indicators, adds to the evidence of weakening demand that should continue to put downward pressure on consumer price inflation and keep the door open for a September Fed rate cut.

Table 1 - United States — Retail Sales

(month/month % change)

Source: BMO Economics, Haver Analytics