U.S. retail sales rose a meager 0.1% in May, suggesting slower economic growth. Inflation and rising interest rates may be testing consumer resilience.
The U.S. economy might be experiencing a slowdown, as indicated by a tepid rise in May's retail sales data. This lackluster performance, coupled with downward revisions for previous months, raises concerns about consumer spending.
Inflation's Bite and Rising Rates
While gasoline prices declining slightly, overall inflation and rising interest rates appear to be impacting consumer purchasing power. With households prioritizing essentials, discretionary spending seems to be taking a backseat. This could potentially influence the Federal Reserve's decision on interest rates, with some economists anticipating a potential cut in September.
Retail Sales Breakdown
The Commerce Department reported a 0.1% increase in May's retail sales, following a revised 0.2% decline in April. Economists had predicted a more robust 0.3% growth. Although inflation-adjusted sales are estimated to have climbed slightly, the trend suggests a slowing pace. This aligns with tighter credit access and struggles of low-income borrowers.
A Mixed Picture
Despite the overall slowdown, some sectors witnessed growth. Online store sales saw a 0.8% increase, partially recovering from April's decline. Additionally, sales at sporting goods, hobby, and book stores experienced a notable jump of 2.8%.
Core Retail Sales and Manufacturing
Core retail sales, excluding autos, gasoline, building materials, and food services, rose 0.4% in May, after a revised drop in April. This metric closely aligns with consumer spending in GDP calculations. The downward revision in core retail sales suggests moderate consumer spending in Q2, prompting some economists to adjust their GDP growth estimates downward.
However, there's a bright spot - manufacturing output. Factory production saw a 0.9% surge in May, indicating a potential revival in the sector. The sustainability of this recovery remains uncertain, dependent on interest rate levels and the pace of consumer spending slowdown.
Additional Information:
The Federal Reserve kept interest rates unchanged last week but projected a possible rate cut later in 2024.
Financial markets anticipate an easing cycle by the Fed, with stocks rising and the dollar weakening on the news.
The tepid retail sales data adds uncertainty to the overall economic outlook, highlighting the challenges arising from inflation and monetary policy decisions.
This article provides insights into the recent U.S. retail sales data and its potential implications. While the picture remains somewhat mixed, it underscores the evolving economic landscape and potential areas of concern.
Source: Reuters
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