The numbers: Retail sales fell sharply in May, suggesting the U.S. is no longer getting a big boost from massive federal fiscal stimulus, but consumers are still spending a lot more now than they did a year ago in a good omen for the economy.
Sales at U.S. retailers sank 1.3% last month, the government said Tuesday.
Economists polled by Dow Jones and The Wall Street Journal had forecast an 0.7% decline.
Sales were held down by fewer purchases of new cars and trucks. Automakers have struggled for months to produce enough vehicles to meet rising demand in the face of major global shortage of computer chips.
If autos are excluded, retail sales fell a smaller 0.7% in May.
Americans are spending more on services — travel, vacations, family visits, entertainment and so forth — and less on the sort of goods sold by retailers.
Big picture: Retail sales have jumped up and down in 2021 because of the influence of financial relief checks sent to many taxpayers by the federal government, but putting them aside, consumer spending is still quite healthy.
Sales in May were 18% higher compare to the last month before the onset of the pandemic in 2020.
Economists predict sales will keep on going up. Americans have lots of savings, more people are going back to work and the economy is getting stronger.
Yet Americans are shifting their spending toward services that were largely off limits during the pandemic: Sit-in dining at full-service restaurants, hotel stays, vacation rentals, plane flights and so on.
Take eating out. Sales at bars and restaurants jumped 1.8% in May to mark the third straight increase and they now exceed precrisis levels. Restaurant receipts sank by a whopping 55% in the early stages of the pandemic and caused thousands of business failures.
Another not-so-rosy reason sales are rising: inflation. Higher prices are partly — but only partly — inflating the increase in sales.
Key details: Auto sales sank 3.7% in April, but it’s mostly a supply problem: Automakers can’t get enough vehicles on dealer lots. Auto sales account for about one-fifth of overall retail sales.
Sales also declined at furniture stores, big-box electronics retailers, internet stores and home centers such as Lowe’s /zigman2/quotes/205563664/composite LOW +0.26% and Home Depot /zigman2/quotes/208081807/composite HD -0.21% .
Sales rose at grocers, clothing stores and bars and restaurants, though some of the increase reflects higher prices.
Still, it’s always a sign of consumer confidence when people feel comfortable going out to eat or drink. Americans spent a record sum on eating out in May.
Gasoline sales also rose 0.7% in May as more people got on the road. Gas prices are expected to rise in the months ahead as the summer driving season gets under way, so Americans can expect to pay more.
Retail sales represent about one-third of all consumer spending, by far the biggest source of the U.S. economy’s growth.
What they are saying? “Don’t read too much into the larger than expected drop in U.S. retail sales in May, as it comes on the heels of an upward revision to April and a dramatic fiscal stimulus-fueled spike in March,” said economist Katherine Judge of CIBC World Markets.
“Household spending will support the overall economic recovery, but growth will shift from goods to services as consumers resume dining out, taking vacations, and going to movies and concerts,” said senior economist Sal Guatieri of BMO Capital Markets.
Market reaction: The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -0.48% and S&P 500 /zigman2/quotes/210599714/realtime SPX -0.91% were fell in Tuesday trades after a report on wholesale prices showed another big increase in inflation.