US retail sales take step back as spending pivots to services, trend remains strong
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U.S. retail sales dropped more than expected in May, with spending rotating back to services from goods as vaccinations allow Americans to travel and engage in other activities that had been restricted by the COVID-19 pandemic.
Despite last month's decline reported by the Commerce Department on Tuesday, the trend in retail sales remains strong. Sales in April were revised sharply up and are well above their pre-pandemic level, keeping intact expectations of double-digit growth in both consumer spending and the economy this quarter.
"The days of spending money online and splurging on durable goods and home furnishings is pivoting toward getting ready for trips to see grandma and grandpa at the lake or the beach and evenings out reconnecting with friends at bars and restaurants," said Tim Quinlan, a senior economist at Wells Fargo in Charlotte, North Carolina.
Retail sales fell 1.3% last month. Data for April was revised higher to show sales increasing 0.9% instead of being unchanged as previously reported. Economists polled by Reuters had forecast retail sales declining 0.8%.
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Retail sales surged 28.1% on a year-on-year basis. The retail sales report mostly capture spending on goods, with restaurants and bars the only services category included.
During the pandemic, demand shifted to goods like electronics and motor vehicles as millions of people worked from home, switched to online classes and avoided public transportation. More than half of eligible Americans are fully vaccinated, boosting demand for air travel, hotel accommodation, dining out and entertainment among other activities.
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May's decline in retail sales was also due to a drop in receipts at auto dealerships, reflecting tight supply as a global semiconductor shortage hampers motor vehicle production.
Receipts at auto dealerships fell 3.7%. Shortages also likely hurt sales at electronics and appliance stores, which dropped 3.4%. Receipts at building material stores tumbled 5.9%. There were also declines in sales at furniture retailers as well as at sporting goods, hobby, musical instrument and book stores.
Online retail sales slipped 0.8%. But sales at clothing stores rose 3.0%. Consumers also increased spending at restaurants and bars, leading to a 1.8% rise in receipts. Sales at restaurants and bars are 70.6% higher compared to May 2020.
Excluding automobiles, gasoline, building materials and food services, retail sales dropped 0.7% after a revised 0.4% fall in April. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.
They were previously estimated to have decreased 1.5% in April. Services such as healthcare, education, travel and hotel accommodation make up the other component of consumer spending.
U.S. stocks were lower. The dollar was steady against a basket of currencies. U.S. Treasury prices fell.
Vaccinations have allowed for a broader reopening of the economy. But the resulting demand, which is also being fired up by trillions of dollars from the government and record-low interest rates, is straining supply chains, fanning inflation.
In a separate report on Tuesday, the Labor Department said its producer price index for final demand increased 0.8% last month after rising 0.6% in April. In the 12 months through May, the PPI accelerated 6.6%, the largest gain since November 2010, after advancing 6.2% in April.