U.S. retail sales unexpectedly fell in May as motor vehicle purchases declined amid shortages, and record high gasoline prices pulled spending away from other goods.
Retail sales dropped 0.3% last month, the Commerce Department said on Wednesday. Data for April was revised lower to show sales increasing 0.7% instead of 0.9% as previously reported. Economists polled by Reuters had forecast retail sales gaining 0.2%, with estimates ranging from as low as a 1.1% decline to as high as a 0.5% increase.
The national average price of gasoline jumped to an all-time high of $4.439 per gallon in May, according to data from the U.S. Energy Information Administration.
The decline in retail sales also reflected a gradual rotation of spending from goods to services. Retail sales are mostly goods, and are not adjusted for inflation. Bars and restaurants are the only services category in the report.
Annual consumer prices increased by the most in nearly 40-1/2 years in May. With inflation eroding wage gains, consumers are turning to savings, accumulated during the COVID-19 pandemic, and taking on debt to maintain spending.
"A significant stockpile of household savings has helped consumers manage mounting inflation pressures to this point," said Sam Bullard, a senior economist at Wells Fargo in Charlotte, North Carolina.
Retail sales are likely to remain sluggish as the Federal Reserve aggressively tightens monetary policy to cool demand and bring down inflation back to its 2% target.
The U.S. central bank is expected to raise its policy interest rate later on Wednesday for a third time this year, with an increase of 3/4 of a percentage point seen as likely, and possibly signals for more large hikes to come.
Excluding automobiles, gasoline, building materials and food services, retail sales were unchanged in May. Data for April was revised down to show these so-called core retail sales increasing 0.5% instead of 1.0% as previously reported.
Core retail sales correspond most closely with the consumer spending component of gross domestic product.
© 2023 Thomson/Reuters. All rights reserved.