A worker helps check-out at a Costco store in Teterboro, New Jersey, US, on Wednesday, February 28, 2024.
Stephanie Keith Bloomberg Getty Images
Retail spending was weaker than expected in May as consumers continued to struggle with higher inflation rates.
Sales rose just 0.1% in the month, a tenth of a percentage point below Dow Jones estimates, according to a Commerce Department report Tuesday that was adjusted for seasonality but not inflation. However, the result was slightly better than the downwardly revised 0.2% decline in April.
On a year-over-year basis, sales increased by 2.3%.
Sales numbers were worse when excluding cars, with a 0.1% decline against estimates of a 0.2% increase.
Moderate gas prices helped reduce receipts at gas stations, which reported a monthly decline of 2.2%. This was offset by a 2.8% increase in sporting goods, music and book stores.
Online stores reported a 0.8% increase, while bars and restaurants saw a 0.4% decrease. Furniture and home furnishing stores also reported a 1.1% decline.
Stock market futures were flat after the report as Treasury yields fell.
The report explains to investors the direction of the economy and what it means for the future of monetary policy at the Federal Reserve. Consumer spending is responsible for about two-thirds of all economic activity, so any weakness could signal a retrenchment in growth while also prompting the Fed to start cutting interest rates.
The latest inflation numbers have been somewhat encouraging, but spending is showing signs of weakening as consumers have been under pressure from more than two years of rising prices.
The Commerce Department’s gauge that the Fed uses as its main measure of inflation showed an annual rate of 2.7% in April, or 2.8% when excluding food and energy. The Fed’s inflation target is 2%.
Market prices indicate the equivalent of two interest rate cuts this year of a quarter percentage point each, although Fed officials at a meeting last week indicated the likelihood of just one. After the retail data, traders in the food fund futures market increased their bets that the Fed will ease, even pricing in a 23% chance of three cuts this year, according to CME Group’s FedWatch gauge.
Philadelphia Fed President Patrick Harker said there would be appropriate to cut rates later this year only if the data cooperate, and said he envisions the possibility of only one move lower.