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Discretionary spending categories drag down May retail sales

Retail sales and food-services spending fell 1.3% in May following gains in three of the prior four months. The weaker result in May still leaves retail sales at the third highest on record and well above the most recent nine-year trend. From a year ago, retail sales are up 28.1%.

Core retail sales, which exclude motor vehicle dealers and gasoline retailers, posted an 0.8% decline for the month, leaving that measure with a 23.8% gain from a year ago. Despite the fall, core retail sales are also at the third highest on record and well above the nine-year trend.

Gains and losses for the various categories of retailers continue to be quite erratic. Over the past eight months, two – January and March – had broad gains, two – November and February – had broad declines, while the remaining four were generally mixed. For May, the major categories shown in the report had mixed results though most of the declines tended to be in discretionary categories while the gains came in consumer staples.

Decliners were led by a 5.9% drop in building material and garden equipment and supplies dealers, a 5% decrease in miscellaneous store retailers, a 3.7% fall in motor vehicles and parts dealers, a 3.4% drop in electronics and appliance stores, a 3.3% decline in general merchandise stores, and a 2.1% pullback in furniture and home furnishings.

The gains were led by a discretionary category, clothing and accessory stores, which posted a 3% rise, but other gainers included health and personal care stores, up 1.8%, food and beverage stores, up 1% and gasoline stations, up 0.7%.

Overall, retail sales posted a weak result in May, but it follows three strong gains since the beginning of the year, leaving total and core retail sales well above trend and near record highs. Reopening the economy is supporting a rebound for the labor market, personal incomes and consumer confidence, suggesting the economic outlook remains favorable. However, difficulty finding and retaining workers, logistical problems, and materials shortages are driving prices higher, and those accelerating prices are impacting consumer sentiment. However, a 1970s-style inflationary spiral remains highly unlikely, and the overall economic outlook remains tilted to the upside.

Copyright 2021 AIER. Reprinted with permission.

 

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