Retail Slump: Why May Saw a Dip in Consumer Spending

Consumer spending took a hit in May, with retail sales dropping by 0. 9\%. This decline was worse than the predicted 0. 6\% decrease, according to seasonally adjusted figures. The slowdown was largely due to a drop in gas sales and growing economic uncertainty. This dip followed a modest 0. 1\% decrease in April, adding to the overall unease caused by tariffs and geopolitical tensions. Despite the monthly decline, sales were up 3. 3\% compared to the previous year. The retail sector saw mixed results. When excluding autos, sales fell by 0. 3\%, contrary to the expected 0. 1\% increase. However, when stripping out auto dealers, building materials suppliers, gas stations, and other categories, sales actually rose by 0. 4\%. This figure, known as the control group, is crucial for calculating the gross domestic product (GDP). Various sectors experienced different outcomes. Building materials and garden stores saw a 2. 7\% drop in sales, while lower energy prices led to a 2\% decrease in gasoline station receipts. Motor vehicle and parts retailers also faced a 3. 5\% decline, and bars and restaurants saw a 0. 9\% drop in sales. On the brighter side, miscellaneous retailers enjoyed a 2. 9\% increase, online sales rose by 0. 9\%, and furniture stores saw a 1. 2\% boost. The stock market and Treasury yields reacted negatively to the retail sales report. This pullback in spending occurred despite surveys indicating improved consumer sentiment in May, though this sentiment had been declining throughout the year. The ongoing trade war, sparked by tariffs, had dampened both consumer and business optimism. However, a temporary easing in trade tensions led to better economic readings. The first quarter of the year saw a 0. 2\% annualized decline in GDP, but projections suggest a rebound. Before the retail sales report, second-quarter growth was estimated at 3. 8\%, according to the Atlanta Federal Reserve's GDPNow tracker. This tracker will be updated later in the day. Meanwhile, import prices remained flat against a forecasted 0. 1\% decline, while export prices fell by 0. 9\%. This is a sign that the economy is still struggling to find its footing.