U.S. Retail Sales Climb 0.9% in May, Fueled by Consumer Spending and Tax Refunds

Retail sales in the United States increased by 0.9% in May, outperforming forecasts, according to new data released by the Commerce Department on Wednesday. This marks an acceleration from a revised 0.4% gain recorded in April. The boost in sales was partially attributed to substantial government tax refunds issued during both April and May, although economists suggest that this financial cushion is beginning to fade.

Excluding sales at gas stations, retail sales in May rose by 0.7%. Spending was observed across a wide range of categories, with clothing, accessory, and furniture stores all reporting increases. Online sales also saw a notable rise of 1.5%. However, some sectors experienced slight declines, including electronics and appliance stores, and department stores. The data, released on Wednesday, provides a snapshot of consumer spending but does not encompass activities such as travel and hotel stays. The restaurant sector, the sole services category reported, registered a 0.1% decline.

Despite these mixed results, the so-called control group—which omits food services, autos, building materials, and gas station sales and is used to calculate economic growth—rose by 0.7%, indicating solid underlying spending, according to economists. Consumers are a vital component of the American economy, driving a significant portion of the nation's economic growth. The latest retail sales report highlights that consumer spending has remained resilient throughout the year, even amidst rising prices.

Economists also noted that solid increases in hiring have supported spending. Kathy Bostjancic, Chief Economist at Nationwide, commented that the stronger-than-forecast and broad-based gains in May retail sales demonstrate sustained consumer spending despite higher gasoline prices, aided by large tax refunds, household tax reductions, and recent employment growth.

Inflation reached its highest level in three years last week, with U.S. data showing that consumer prices climbed 4.2% in May compared to the previous year. On a monthly basis, prices increased by 0.5% in May, following gains of 0.6% in April and 0.9% in March.

The global energy landscape continues to influence consumer behavior. A tentative deal aims to end the Iran war and reopen the Strait of Hormuz, but even with oil flows resuming from the Middle East, a substantial easing of the supply crunch is expected to take time. Gas prices decreased by approximately one cent overnight to $4.02, representing an 11% drop from a month ago, according to motor club AAA. The national average for a gallon of gasoline has not fallen below $4 since March.

Industry leaders are closely monitoring these developments. Steve Lamar, CEO of the American Apparel & Footwear Association, stated that the industry remains cautious, questioning whether the agreement will be robust enough for global industry recovery. Lamar also highlighted that unplanned costs, such as increased expenses for ocean freight, air cargo, and packaging, continue to impact profit margins, indicating that stabilization will be a gradual process.

Rising gas prices this year, partly due to the Iran war, have also begun to alter consumer habits. Analysts suggest that some shoppers may maintain practices adopted during periods of high prices, such as purchasing fuel at big box stores like BJ’s, Costco, and Sam’s Club for member discounts. Visits to gas stations operated by these chains began to accelerate in early March, coinciding with a sharp increase in fuel prices, as reported by R.J. Hottovy, head of analytical research at Placer.ai, which tracks people’s movements via cellphone usage. According to Fortune, these intertwined economic factors are shaping current consumer trends.

(Source: Fortune)