April showers brought May flowers—but they probably didn’t bring about much shopping for flowers.
Retail sales likely contracted in May, reversing April’s 0.4% uptick, which had been the first increase since January. Economists polled by FactSet estimate that May’s retail sales report—due Thursday morning—will show a 0.2% month-over-month decrease.
According to Cowen, foot traffic into retailers decelerated in May. Traffic was up 5.5% year-over-year in May, down from January’s 44.9% increase and marking a new low for 2023. And
Citi
‘s credit card data backs it up. Select retail spending on Citi credit cards fell by about 0.3% month over month, driven by drops in spending on auto retail, apparel, and restaurants.
While the retail sales report always draws market attention, May’s data will be scrutinized even further for any “green shoots,” given that “the consumer is the only hope for a U.S. economic recovery,” wrote Louis Navellier, chief investment officer of Navellier.
And indeed, it isn’t all doom and gloom for retail sales. Stripping out fluctuations in gas and auto prices, retail sales are actually expected to rise 0.4%, according to FactSet.
“Gas spending dropped substantially, partly due to lower gas prices,” wrote
BofA
economist Aditya Bhave in a note to clients.
Bhave notes that the bank’s proprietary credit card data indicated that spending on “big ticket” services—such as travel or other experiences—remains fairly strong, even as spending on big ticket items—such as furniture or electronics—has gone down.
“The bottom line is that consumers have rotated their major purchases from goods to services, instead of pulling back on such spending altogether,” he wrote. “In our view, this is a sign of consumer health.”
While signs that consumers are pulling back bode poorly for retailers and other consumer-facing industries, it would likely be received well by the Federal Reserve. The central bank has been raising interest rates for over a year in a bid to stifle consumer demand and tame inflation. The efforts seem to be working—but there’s still work ahead for the Fed.
Headline inflation grew by 4% in May, down from April’s 4.9% increase but still well above the Fed’s 2% target.
On Wednesday, Fed officials chose to hold the benchmark interest rate steady, marking the first time in 15 months that the central bank skipped a rate increase. Fed Chair Jerome Powell indicated the central bank has largely written off cutting rates anytime this year and is still considering increasing rates further if necessary.
“Inflation has not really moved down—it has not so far reacted much to our existing rate hikes,” Powell said in remarks on Wednesday.
Write to Sabrina Escobar at sabrina.escobar@barrons.com
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