Sales in May were fairly healthy within the core retail segment covered by Retail Dive, rising 4.5% year over year compared to 2023. But a dip in growth from April and declines in some categories reiterated for many observers that consumers remain hesitant, possibly more so than in the first quarter.
In the face of lower savings and slower wage growth, discretionary spending is taking a back seat to persistent inflation, growing credit card debt and rising insurance premiums, according to a report from The Conference Board following the U.S. Commerce Department’s monthly sales release.
“The May retail sales report we received this morning may be another signal that the long-expected deceleration in consumer spending may finally be upon us,” Adriana Kugler, who sits on the Federal Reserve Board of Governors, said in a speech Tuesday.
However, all this may not be entirely a bad thing, even for retailers, because weaker consumer spending could help cool inflation further and stave off a recession, according to a published report from Dana Peterson, The Conference Board’s chief economist and leader of its economy, strategy and finance center.
While sales at e-commerce and miscellaneous retail were quite robust in May, retail overall missed expectations, Bankrate Senior Industry Analyst Ted Rossman said in emailed comments. “Bar and restaurant sales are growing modestly, but well off their recent pace,” he also noted. Yet he too sees a silver lining in that otherwise anemic picture.
"The ho-hum retail sales figures are probably in line with what the Federal Reserve expects and wants,” he said. “If these numbers were too hot, that would fuel inflation fears. Too cold could foreshadow a recession. The softness that we're seeing indicates that high interest rates are dampening demand, but not excessively so."
Prices remain higher than a few years ago, but price jumps have steadily slowed since mid-2022, Kugler said. She pointed to evidence that pricing has recently grown more consistent, with some businesses moderating their prices and larger retailers openly announcing cuts. In the last two months, Michaels and Target were among those planning to slash prices on thousands of items.
The Federal Open Market Committee this month opted to keep the federal funds rate unchanged, a move that Kugler said she had supported. The Conference Board’s Peterson said two rate cuts could come toward the end of the year, which could further ease prices while nudging the economy.
The data would have to support such a move, however, Kugler said.
“We need to see more progress toward 2 percent inflation before I will have confidence that inflation is moving sustainably toward that objective,” she said. “For the reasons I have outlined today, I believe economic conditions are moving in the right direction. If the economy evolves as I am expecting, it will likely become appropriate to begin easing policy sometime later this year.”
As retailers prepare for the back-to-school and holiday seasons and the Fed grapples with its balancing act, shoppers remain choosy about when and how much they open their wallets. They are opening them, though: Underlying volumes of goods rose by 1.3% in May, according to GlobalData research.
“There is no indication of a major consumer slump or of a dramatic retrenchment in expenditure,” GlobalData Managing Director Neil Saunders said in emailed comments. “Indeed, most households continue to spend at a steady pace, at least on an aggregate basis.”
