U.S. Retail Sales Climb 0.9% in May, Exceeding Expectations

U.S. retail sales advanced by 0.9% in May, surpassing consensus forecasts and indicating continued consumer strength. This increase contributes to a 6.9% rise in retail sales compared to a year ago.

Excluding the automotive sector, sales also exceeded expectations, growing by 0.8% in May, or 0.9% when accounting for prior month revisions. Over the past year, these sales have increased by 7.5%. Significant drivers of the May growth included gas stations, non-store retailers (online and mail-order), and auto sales. Conversely, restaurants and bars experienced the most notable decline.

Sales, when excluding volatile categories such as autos, building materials, and gasoline, rose by 0.6% in May. Should this trend remain consistent in June, these specific sales would register an annualized growth rate of 6.9% for the second quarter, relative to the first quarter average.

The overall nominal increase in sales was notably broad-based, with nine out of thirteen major sales categories reporting gains. When excluding sales at the pump, the growth remained a solid 0.7%. However, these figures are not adjusted for inflation; after accounting for inflationary pressures, the real increase in overall sales was a more modest 0.4%. "Core" sales—which exclude the typically volatile categories of autos, building materials, and gas stations—increased by 0.6% in May. This measure is a key indicator for estimating Gross Domestic Product (GDP)¹. Among the core categories, non-store retailers saw the largest increase, rising 1.5% in May, marking its fourth gain above 1.0% in the last five months. Sales in this category have surged 12.2% over the past year, the highest among all core categories.

Sales at restaurants and bars, which offer the primary insight into service-sector spending within this report, experienced a 0.1% decline in May—the first such decrease in four months. This could signal that consumers are beginning to scale back discretionary expenditures as a greater portion of their income is allocated to gasoline purchases. While nominal retail sales have climbed 6.9% in the past year, inflation-adjusted, or "real," sales² are up 2.6% over the same period, remaining below their April 2022 peak. Recent higher-than-normal tax refunds may have temporarily bolstered consumer spending power. The personal saving rate³ in April stood at 2.6%, its lowest level since mid-2022, suggesting limited capacity for consumers to sustain spending growth through reduced savings.

Key terms

1. **Gross Domestic Product (GDP):** The total monetary or market value of all the finished goods and services produced within a country's borders in a specific time period. It serves as a comprehensive scorecard of a given country's economic health.

2. **Real sales:** Sales figures that have been adjusted for inflation, providing a more accurate picture of actual purchasing power over time by removing the effect of rising prices.

3. **Personal saving rate:** The percentage of disposable personal income that is saved by individuals, providing insight into household financial behavior and their capacity for future spending or investment.