Source: Economics Group of Wells Fargo Bank, N.A.
Summary
The downside miss for May retail sales amid downward revisions to past data paint a picture of a softening consumer, but weakness appears overstated when considering lower inflation. We look for a gradual moderation in spending to take hold as the year progresses.
Spending Skips a Beat
The May retail sales data are consistent with only a gradual moderation in consumer spending. Retail sales came in a touch soft, rising just 0.1% during the month, and there were also downward revisions to past months’ data that leave the level of sales about 0.4% lower in April than previously reported (chart). Yet it’s not unusual to see revisions to prior months’ data, and part of the May weakness can be tied to declining goods prices, meaning “inflation-adjusted” sales were likely higher than the data suggest. Still, the weaker-than-expected outturn for May (we had forecast sales to rise 0.2%) combined with the downward revisions suggest a slightly weaker spending environment in the second quarter.
The sales details by retailer were also fairly mixed under the headline change. The largest gain came from sporting goods stores, where sales jumped 2.8% after two consecutive monthly declines. Auto sales provided a decent lift to headline sales as well rising 0.8%, and when we strip autos from the data, overall sales declined 0.1% last month. Weakness can be somewhat explained by softening goods prices in May, for example sales at gasoline stations slipped 2.2%, but that comes after a 3.6% drop in motor fuel prices suggesting inflation-adjusted sales were higher.