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

U.S. retail sales increased by 0.9% in May, outperforming market expectations and demonstrating ongoing consumer strength. This rise contributes to a 6.9% year-over-year growth in retail sales.

Excluding automotive sales, which saw a 1.2% increase, retail sales still advanced by 0.8% in May. After revisions to prior months, this figure stands at a 0.9% gain. On a yearly basis, sales excluding autos have escalated by 7.5%. Significant growth areas in May included gasoline stations, non-store retailers (e-commerce and mail-order), and motor vehicles. Conversely, spending at restaurants and bars experienced the largest contraction.

Adjusting for various volatile categories, "core" retail sales—which exclude autos, building materials, and gasoline— increased by 0.6% in May. If this pace continues into June, these sales would post a 6.9% annualized growth rate in the second quarter compared to the first-quarter average. This core measure is particularly vital for estimating Gross Domestic Product. Within this grouping, non-store retailers led the increases with a 1.5% rise, marking its fourth gain above 1.0% in the last five months and representing a 12.2% increase over the past year, the highest among core categories. Conversely, sales at restaurants and bars, a key indicator for services spending, edged down 0.1% in May, its first decline in four months, potentially indicating consumers curtailing discretionary outlays as a greater portion of income is allocated to fuel.

While nominal retail sales have climbed 6.9% over the last year, adjusting for inflation reveals a more modest "real" increase of 2.6% over the same period. This inflation-adjusted figure remains below its April 2022 peak. It is worth noting that elevated tax refunds may have temporarily bolstered consumer spending power. The personal saving rate, last reported at 2.6% in April—its lowest since mid-2022—suggests limited capacity for consumers to sustain spending growth through reduced savings. Nevertheless, an anticipated peace agreement between the U.S. and Iran could alleviate consumer financial pressures through lower energy prices in the latter half of the year.

Key terms

1. **Nominal vs. Real Sales**: Nominal sales refer to the unadjusted dollar value of sales, while real sales are adjusted for inflation to reflect changes in purchasing power.

2. **Core Retail Sales**: A measure of retail sales that excludes volatile categories like auto sales, building materials, and gasoline, often used to better gauge underlying consumer demand and its impact on GDP.

3. **Annualized Rate**: A projection of a quarterly or monthly growth rate over an entire year, providing a consistent basis for comparison.