US Retail Sales Growth Slows Amid Economic Uncertainty

US Retail Sales Growth Slows Amid Economic Uncertainty

In a recent report by the Commerce Department, US retail sales showed tepid growth in May, underscoring mounting financial pressure on consumers. The data revealed a meager 0.1% increase in retail purchases. This figure excludes adjustments for inflation and follows a downwardly revised 0.2% decline in the previous month. Excluding volatile sectors like gasoline, sales managed a slightly stronger uptick of 0.3%.

Sectorial Declines and Economic Factors

Among the 13 sectors monitored by the Commerce Department, five experienced declines, influenced partly by lower gasoline prices and Memorial Day discounts offered by furniture outlets. This downturn signals a notable slowdown in consumer spending compared to earlier in the year. It is driven by concerns over persistent inflation, a cooling job market, and signs of increasing financial strain among households.

Economic Analysts’ Perspectives

Economists, including Paul Ashworth from Capital Economics, cautioned that recent indicators show slowing services consumption growth and dwindling consumer confidence. They suggest that households may not be as resilient to higher interest rates as previously assumed.

Impact on Federal Reserve and Market Reactions

The softer-than-expected consumer and producer prices in May are expected to bolster the Federal Reserve’s confidence in potential interest rate adjustments. Despite Chairman Jerome Powell’s recent remarks about robust consumer spending and a resilient household sector. The release of the retail sales report led to a decline in Treasury yields. This signaled concerns over economic softening.

Control-Group Sales and GDP Implications

The report also highlighted a 0.4% increase in control-group sales for May, a critical metric for GDP calculations, following a significant 0.5% decline in the previous month. This metric excludes food services, auto dealers, building materials stores, and gasoline stations.

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Forecasts and Economic Outlook

Looking forward, forecasts from Morgan Stanley suggest slower GDP growth in the second quarter, with Oxford Economics noting downside risks to its growth projections. While retail sales predominantly reflect goods purchases rather than services. Upcoming data will provide a clearer picture of inflation-adjusted spending across both sectors for May.

Consumer Spending Dynamics

Stephen Stanley, chief US economist at Santander US Capital Markets LLC, highlighted, “While consumer spending on services drives the majority of overall consumption. The recent retail sales figures align with expectations of a looming slowdown.”

Services Sector Challenges

Spending at restaurants and bars, the only service-sector category in the report, saw a notable 0.4% decline. This marks the sharpest drop since January, indicating consumers are tightening their budgets despite the Memorial Day holiday.

Broader Economic Indicators

Earlier reports of a decline in credit card balances for the first time in three years and rising delinquencies have also impacted consumer sentiment negatively. However, separate data released on Tuesday showed an uptick in industrial production for May. The increase in industrial production was driven by heightened factory output. This offers a positive outlook despite challenges such as high input prices and fluctuating consumer demand.

While the recent retail sales report signals a cautious approach by consumers amid economic uncertainties. The positive industrial production figures provide a glimmer of hope for the manufacturing sector. Economists remain vigilant, citing ongoing challenges that could temper economic recovery in the near term.

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