US retail sales fall in May; producer prices increase
United States retail sales fell more than expected in May, with spending rotating back to services from goods as vaccinations allow Americans to travel and engage in other activities that had been restricted by the COVID-19 pandemic.
Retail sales dropped 1.3 percent last month, the Commerce Department said yesterday. Data for April was revised higher to show sales rising 0.9 percent instead of being unchanged as previously reported. Economists polled had forecast retail sales declining 0.8 percent.
During the pandemic, demand shifted to goods like electronics and motor vehicles as millions of people worked from home, switched to online classes and avoided public transportation.
Now more than half of American adults have been fully vaccinated, boosting demand for air travel, hotel accommodation, dining out and entertainment among other activities. Vaccinations, trillions of dollars from the government and record-low interest rates are fueling demand.
"The reopening of the economy is likely to mean that some discretionary spending on services will start to compete with purchases of goods, which dominate the retail sales report," said Lou Crandall, chief economist at Wrightson ICAP in Jersey City.
Restaurants and bars are the only services category included in the retail sales report.
May's decline in retail sales was also due to a drop in receipts at auto dealerships. This reflected tight motor vehicle supplies as a global semiconductor shortage hampers motor vehicle production.
Excluding automobiles, gasoline, building materials and food services, retail sales fell 0.7 percent last month after a revised 0.4 percent drop in April. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. They were previously estimated to have fallen 1.5 percent in April.
Retail sales account for the goods component of consumer spending, with services such as health care, education, travel and hotel accommodation making up the other portion.
Goods account for about 41 percent of consumer spending, with services making up the rest. As such, consumer spending likely remained robust in the second quarter, powering economic growth.
Although income from stimulus checks are ebbing, consumers have amassed at least US$2.3 trillion in excess savings during the pandemic, which is expected to drive spending this year and beyond.
Consumer spending, which accounts for more than two-thirds of US economic activity, grew at a 11.3 percent annualized rate in the first quarter. Another quarter of strong growth is anticipated, and most economists are forecasting double-digit GDP growth in the second quarter.
But robust demand is outpacing supply, stoking inflation. In a separate report yesterday, the Labor Department said its producer price index for final demand increased 0.8 percent last month after rising 0.6 percent in April. In the 12 months through May, the PPI accelerated 6.6 percent. That followed a 6.2 percent advance in April.