A worker assists with checkout at a Costco store in Teterboro, New Jersey, U.S., Wednesday, February 28, 2024.
Stephanie Keith | Bloomberg | Getty Images
Retail spending was weaker than expected in May as consumers continued to battle stubbornly higher inflation levels.
Sales rose just 0.1% for the month, a tenth of a percentage point lower than Dow Jones forecasts, the Commerce Department reported on Tuesday, which adjusted for seasonality rather than inflation. However, the result was slightly better than April’s downward revision of 0.2%.
Sales increased by 2.3% compared with the same period last year.
Sales excluding automobiles were even worse, falling 0.1% compared with expectations for a 0.2% growth.
Slowing gasoline prices led to a decline in gas station revenue, which fell 2.2% month-on-month. This was partially offset by 2.8% growth in sporting goods, music and bookstores.
Online stores grew by 0.8%, while bars and restaurants fell by 0.4%. Furniture and home furnishings stores also fell 1.1%.
Stock futures were essentially flat after the report, while bond yields fell.
The report comes as investors are nervous about the direction of the economy and its impact on the Fed’s future monetary policy. Consumer spending accounts for about two-thirds of all economic activity, so any weakness could signal slower economic growth and prompt the Federal Reserve to start cutting interest rates.
Recent inflation data has been somewhat encouraging, but spending is showing signs of weakness as consumers have been under pressure from rising prices for more than two years.
The Commerce Department’s indicator, which is used as the main inflation gauge by the Federal Reserve, showed inflation in April at an annual rate of 2.7%, or 2.8% excluding food and energy. The Fed’s inflation target is 2%.
Markets are pricing in two rate cuts of a quarter percentage point each this year, although Fed officials said at last week’s meeting that only one cut was possible. After the release of the retail sales data, traders in the federal funds futures market increased their bets that the Federal Reserve will implement easing policies. According to the CME Group’s FedWatch indicator, the probability of three interest rate cuts this year is expected to be about 23%. .
Philadelphia Fed President Patrick Harker said on Monday that a rate cut later this year would be appropriate only if the data cooperated, adding that he expected a rate cut to be unlikely.
About The Author
