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US retail sales barely rise in sign of consumer stress
(Bloomberg) — U.S. retail sales barely rose in May and previous months were revised downward, pointing to greater financial pressure among consumers.
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The value of retail purchases, not adjusted for inflation, rose 0.1% after a downwardly revised decline of 0.2% the previous month, Commerce Department data showed on Tuesday. Excluding gasoline, sales rose 0.3%.
Of the 13 categories tracked by the Commerce Department, five showed declines because gas prices were cheaper that month and furniture stores offered Memorial Day discounts.
The figures highlight a notable reduction in consumer spending, following stronger readings at the start of the year. Economists expect a moderate pace of spending going forward as Americans exercise greater prudence given persistent inflation, a gradually cooling job market and emerging signs of financial stress.
“With growth in services consumption slowing in recent months and consumer confidence falling again, perhaps households are not as immune to higher interest rates as we were beginning to believe,” said Paul Ashworth, chief economist for America of the North of Capital Economics, in a note. .
Data released last week showed that US consumer and producer prices were both weaker than expected in May, which should help bolster the Federal Reserve’s confidence that it could cut interest rates soon. In holding rates steady last week, Chairman Jerome Powell said consumer spending is still growing solidly and the domestic sector is “in very good shape.”
Treasury yields declined as the report signaled some slowdown in the economy.
The retail report showed that so-called control group sales – which are used to calculate gross domestic product – rose 0.4% in May. It fell 0.5% in the previous month, the biggest drop in about a year. The measure excludes food services, car dealerships, building materials stores and gas stations.
As such, Morgan Stanley now sees a slower GDP growth rate in the second quarter, and Oxford Economics said risks to its growth forecast “remain to the downside.”
Goods vs. services
Retail numbers largely reflect purchases of goods, which represent a relatively small percentage of overall consumer spending. Data to be released later this month will provide more details on inflation-adjusted spending on goods and services in May.
The story continues
“Admittedly, most of the action in terms of overall consumer spending is in the services component, rather than retail sales, but these results are certainly in line with my view that the consumer is on the verge of a slowdown significant,” Stephen Stanley, chief U.S. economist at Santander US Capital Markets LLC, in a note.
Spending at restaurants and bars, the only service sector category in Tuesday’s report, fell 0.4%, the most since January.
“Considering that spending on services was an important driver of consumption growth, such a decline during the month that included the Memorial Day holiday suggests that consumers are feeling the effect of tight budgets,” said Estelle Ou and Eliza Winger, from Bloomberg Economics, in a note.
A report on consumer debt published earlier this month showed a pullback in credit card balances for the first time in three years as households faced more expensive debt and delinquencies continued to rise. This is also affecting sentiment.
Separate data released on Tuesday showed that industrial production rose in May, helped by a recovery in industrial output, in a positive sign for a manufacturing sector that has struggled to gain momentum. The numbers contrast with other measures that show that the manufacturing industry has had difficulty gaining momentum in the face of high prices of production factors, inconsistent consumer demand and high financing costs.
“This is a favorable development for the industrial sector, but it is difficult to see it as the start of sustained strength as the sector is faced with headwinds that will limit the pace of recovery,” Shannon Seery Grein and Tim Quinlan, Wells economists. Fargo, said in a note.
–With assistance from Christopher Condon, Chris Middleton and Mark Niquette.
(Adds impact on GDP in ninth paragraph)
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