It looks like the consumer paused the spending spree in May. But on average, sales have been healthy over the past few months. Overall retail sales in May fell 1.2 percent after gaining 0.6 percent in April and jumping 2.1 percent in March. May came in far lower than analysts' expectations for a 0.4 percent increase. Autos were only part of the decline as sales ex autos decreased 1.1 percent after gaining 0.6 percent in April. Sales excluding autos and gasoline posted a 0.8 percent drop, following a 0.6 percent boost in April.
In this latter measure, weakness was mainly in building materials & garden supplies. Excluding autos, building materials, and gasoline, sales edged up 0.1 percent in May after decreasing 0.2 percent in April.
The bottom line still is that consumer spending has been healthy on average over the last several months. Some offset should not be a surprise after a strong burst of activity. But the 1.7 percent decline in auto sales in the retail sales report actually somewhat surprising given that unit new motor vehicle sales were up 3.8 percent for the month. But weakness could have been in used cars, parts, or in price.
The drop in sales for overall sales in May was centered in a 9.3 percent plunge in building materials. This was the largest fall for this component since the start of the series over 18 years ago. However, this component jumped 8.1 percent in March and 8.4 percent in April. So, the decline in May is not terrible in context.
Other notable weakness in May was in gasoline, down 3.3 percent, and in clothing, down 1.3 percent. The drop in gasoline sales almost certainly was price related and the same may be true for clothing.
On the positive side were nonstore retailers, up 2.0 percent; furniture & home furnishings, up 1.0 percent; miscellaneous store retailers, up 0.9 percent; electronics, up 0.6 percent; sporting goods, etc., up 0.4 percent; food & beverage, up 0.3 percent; and food services & drinking places, up 0.1 percent.
Overall retail sales on a year-ago basis in May came in at 6.9 percent and compared to 9.0 percent the month before. Excluding motor vehicles, the year-on-year rate slipped to 6.1 percent from 7.8 percent in April.
Today's numbers clearly were disappointing and equity futures declined on the news-and Treasury yields slipped. But looking ahead, the PCEs component in the personal income report likely will not be as bad with it based on better auto numbers. And it should be much better in real terms.
Market Consensus Before Announcement
Retail sales for April came in at a healthy 0.4 percent advance, extending a robust string of gains this year. This followed an upwardly revised 2.1 percent surge in March. Ex-auto sales rose 0.4 percent in the latest month with ex-auto, ex-gasoline sales also posting a 0.4 percent gain. Looking ahead, unit new motor vehicle sales rebounded 3.8 percent in May and should support retail sales. However, gasoline prices have come down and chain store sales were soft in May.
Retail sales measure the total receipts at stores that sell durable and nondurable goods. Consumer spending accounts for two-thirds of GDP and is therefore a key element in economic growth. Why Investors Care
Nearly 75 percent of the time, changes in monthly retail sales are between +1 percent and -1 percent. However, there are many months in which the monthly change falls outside that range. Most of the time, excessive increases or decreases are due to higher/lower spending on motor vehicle sales. Year-over-year changes in retail sales can be volatile as well, but tend to be smoother than monthly changes.