US retail sales saw a slow increase last month, up just 0.1% from April, according to the Commerce Department. That increase, while an improvement on the 0.2% drop in April, was below the 0.3% growth expected by economists. The biggest drop in sales was seen at gas stations, which saw a 2.2% decline. However, specialty stores selling sporting goods, books and musical instruments saw a 2.8% increase in sales.
Despite the overall increase in retail sales over the past six months, April and March data were revised to lower figures. The current economic context, marked by high inflation and interest rates, is causing a gradual moderation in consumer spending. The aggressive rate hike campaign launched by the Federal Reserve in 2022, aimed at curbing price rises, has led to the highest interest rates in nearly 25 years.
Retail giants like Walmart, Kohl's and Target have reported that consumers are starting to feel the pinch and are cutting back on spending. This trend is not limited to lower-income Americans; middle-income consumers are also feeling the impact of economic pressures. Even high-end retailers have reported a slowdown in luxury spending, indicating wealthier shoppers are also feeling the strain.
However, spending on travel and other in-person experiences such as concerts is expected to remain strong this summer. The Commerce Department will release more comprehensive consumer spending figures for May later this month.
Weaker-than-expected spending in recent months could set the stage for the Federal Reserve to cut borrowing costs later this year. The latest consumer price index showed that prices remained stable in May on a monthly basis for the first time since July 2022. This data, along with other economic indicators, suggest that the US economy is it's slowing down instead of overheating. The timing of the Federal Reserve's first rate cut this cycle will depend largely on inflation trends and general economic conditions.
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