The disappointing retail sales report “is showing the strain of elevated interest rates, with housing-related categories of spending continuing to decline in May,” Oxford Economics said in a note early Tuesday.
“There was also a surprise decline in spending at restaurants and bars [which declined 0.4% during the month], though other evidence suggests spending on other services is still holding up well. A price-related fall in gasoline station sales also weighed on the headline figure,” wrote Michael Pearce, Oxford Economics deputy chief US economist.
Retail sales in May increased just 0.1%, falling shy of the 0.3% economists polled by Bloomberg had expected. In April, retail sales ticked down 0.2%, according to revised data from the Commerce Department.
Excluding autos and gas, retail sales edged up 0.1%, below estimates for a 0.4% increase but above the 0.3% decline seen in April.
“Consumer spending is slowing because real income growth is moderating and because some consumers are becoming credit constrained amid elevated interest rates and rising credit card utilization,” Pearce said. “However, with unemployment unlikely to rise much and the state of households balance sheets still looking strong in aggregate, we expect consumer spending growth will remain close to its current pace in the second half of the year.”
Raymond James’ chief economist Eugenio Aleman was a bit more pessimistic: “The downward revisions to April shows a very weak start by the US consumer during the second quarter of the year, which is consistent with our view of the US economy.”
Last week, the Federal Reserve signaled it would lower interest rates just one time this year, down from the three cuts the central bank anticipated in its previous March projection.
The central bank still expects a strong economy to end the year. Officials see the unemployment rate holding steady at 4% in 2024, matching the previous forecast. Unemployment is expected to tick higher to 4.2% in 2025 before coming down to 4.1% in 2026.
The Fed maintained its previous forecast for US economic growth, with the economy expected to grow at an annualized pace of 2.1% this year before ticking down slightly to 2% in 2025 and remaining at that level through 2026.
