Weak May Retail Sales Amid High Inflation and Elevated Interest Rates

In May, retail sales in the US rose just 0.1% from the previous month, according to the Commerce Department. Despite this weak growth pace, American consumers continue to face high inflation and elevated interest rates. While seasonal swings have been adjusted for in the May figures, they remain unadjusted for inflation.

The data showed that sales decreased the most at gas stations, falling by 2.2% in May. Excluding gas stations, sales were up by 0.3% last month. American shoppers also reduced their purchases at furniture stores (-1.1%) and stores selling building materials and garden equipment (-0.8%). On the other hand, spending was strongest at specialty stores that sell sporting goods, books, and musical instruments, which saw a 2.8% increase in sales last month.

Retail sales have increased four times over the past six months leading up to May; however, numbers for April and March were revised lower by the Commerce Department due to inflation’s impact on consumer spending patterns during this period of economic uncertainty. Inflation may be down from its recent highs but remains elevated nonetheless due to ongoing supply chain disruptions caused by Covid-19 pandemic fallout and geopolitical tensions around the world. Additionally, interest rates are now at their highest level in nearly a quarter century as a result of the Federal Reserve’s rate-hiking campaign in 2022 aimed at curbing inflationary pressures and stabilizing economic conditions before further monetary policy decisions are made later this year or early next year when it will depend on how much more interest rates will rise or not rise anymore.

Household savings accumulated during the Covid-19 pandemic have been dwindling steadily over time and may already have been exhausted entirely due to rising living costs such as housing prices, healthcare expenses, food prices etc., which put more pressure on consumers’ purchasing power making them less likely to spend money on non-essential items like clothing or luxury goods.

This situation creates uncertainties for both businesses and policymakers alike regarding consumer spending patterns moving forward into summer months and beyond while continuously monitoring how things unfold with further developments coming soon.