Strong retail consumer spending data for May raises hopes that impact of Iran war is beginning to fade
The U.S. Department of Commerce said U.S. retail sales increased more than expected in May, indicating that even with high prices, people are still spending money. Even though households paid higher prices for gasoline during the same period, they spent more on motor vehicles.
According to Reuters, experts say this spending intensity may slow down later as tax rebates shrink and prices remain high. Job growth has also improved recently, coupled with strong sales, suggesting the economy remains resilient even after a recession. oil price shock.
Strong consumer trends
this Fed The Federal Reserve is expected to maintain its benchmark interest rate at a range of 3.50% to 3.75% at the meeting, but may cancel its previous “easing tendency.” BMO Capital Markets economist Scott Anderson said strong sales and faster spending in May could worry the Federal Reserve as it tries to rein in inflationary pressures, Reuters reported.
The U.S. Commerce Department’s Census Bureau said retail sales rose 0.9% in May, following a revised 0.4% increase in April and above the 0.4% forecast by most economists. According to Reuters, retail sales rose 0.4% after adjusting for inflation. Total retail sales of consumer goods in May increased by 6.9% year-on-year, indicating strong overall consumer demand. This strong spending differs from weak consumer sentiment, as people are still feeling inflationary pressures but continue to buy goods.
Energy prices and demand
Santander economist Stephen Stanley said in a Reuters report that if energy prices continue to fall, consumer spending will remain stable, but if prices rise again, consumption habits may become unsustainable.
Also read: How will the Fed’s June interest rate decision affect your finances? Here’s what you need to know
Gas station sales increased by 3.4% in May, which helped overall retail sales. In April, they had increased by 2.4%, an increase of 26.5% over the same period last year. Tax rebates and rising stock markets have supported spending, but economists say they have also reduced savings, especially for lower-income groups facing higher fuel costs. Data from the American Banking Institute shows that some consumers are now going to stores more frequently to look for discounts, although there are no major signs of an increase in borrowing yet.
Credit pressure rises
Inflation has risen faster than wages over the past two months, with the savings rate falling to a four-year low in April. A NerdWallet survey found that 35% of Americans may need to use credit to cover some expenses this month, a sign of growing financial stress. According to Reuters, NerdWallet economist Elizabeth Renter said relying on credit spending is unsustainable and could lead to an increase in household debt problems. Auto dealer sales increased by 1.2%, indicating a recovery in auto demand.
Online retail sales increased by 1.5%, and furniture store sales increased by 1.0%. Sales at health, personal care, apparel and hobby-related stores also increased during the month. However, food services and drinking establishments edged down 0.1%, a key sign of household financial stress. Sales at electronics and appliance stores fell 0.5%, while sales at building materials and food stores remained unchanged. Economists said the weakness in some categories suggested consumers were becoming more price-sensitive.
Core Spending and Growth Outlook
Core retail sales, which exclude automobiles, natural gas, building materials and food services, rose 0.7% in May after rising 0.5% in April. These core sales are closely tied to U.S. GDP consumer spending, making them an important economic indicator. Consumer spending accounts for more than two-thirds of total spending U.S. economyappears to be picking up again after slowing earlier this year. The Census Bureau also reported strong business inventories in April, which could support future growth.
