Retail Sales Rise a Meager 0.1% as High Inflation Curbs Spending

By MAE ANDERSON AP Business Writer

NEW YORK (AP) – Consumers barely increased spending in May from April as still high prices on groceries and other necessities and high interest rates curbed spending.

Retail sales rose 0.1% in May, below the pace that economists projected, according to the Commerce Department. And April sales were revised downward – a 0.2% decline, from unchanged. Sales rose 0.6% in March and 0.9% in February. That comes after sales fell 1.1% in January, dragged down in part by inclement weather.

Excluding gas prices and auto sales, retail sales rose the same amount.

Retail sales in May, in part, were depressed by falling gas prices. Excluding sales from gasoline, sales were up 0.3%. The national average price for a gallon of unleaded gasoline was $3.45 as of Monday; a month ago, it was $3.59, AAA said.

Government retail data isn’t adjusted for inflation, which was unchanged from April to May, according to the latest government report. High inflation helps to inflate retail sales figures.

Still, economists said the report reflected an increasingly cautious consumer. But they point to a silver lining: a weaker-than-expected retail sales report increases the likelihood that the Federal Reserve will start to cut interest rates in a few months.

“Consumer spending is cooling in a fairly orderly fashion,” said Jeffrey Roach, chief economist for LPL Financial in Charlotte, North Carolina. But he added, “So far, the economy could pull off a soft landing, especially if the Fed is quick to adjust policy as conditions change.”

The report showed mixed performances for various categories. While auto and vehicle dealer sales rose, areas related to home sales fell.

Sales at clothing and accessory stores rose 0.9%, while electronics and appliance stores posted a 0.4% gain. Online sales rose 0.8%. But business at building material and garden supplies fell 0.8%. Sales at gas stations were down 2.2%.

The retail sales data also offers only a partial look at consumer spending because it excludes things like travel and lodging. However at restaurants, the lone service category tracked in the monthly retail sales report, sales fell 0.4% in May.

A strong job market and rising wages have fueled household spending but spending remains choppy in the face of rising credit costs and still high inflation, though it has eased. To give shoppers some relief, Target, Walmart and other chains have rolled out price cuts – some permanent, others temporary, heading into the summer months.

Earlier this month, the government reported that America’s employers added a robust 272,000 jobs in May, accelerating from April and an indicator that companies are still bullish enough in the economy to keep hiring despite stubbornly high interest rates.

The government’s report on consumer inflation last week, showed how inflation cooled substantially in May, as the cost of gasoline, new cars, and even car insurance fell.

Consumer prices excluding volatile food and energy costs – the closely watched “core” index – rose 0.2% from April to May, the government said last week. That was down from 0.3% the previous month and was the smallest increase since October. Measured from a year earlier, prices increased 3.3%, less than the 3.6% gain a month earlier.

Federal Reserve officials said last week after the report came out that inflation has fallen further toward their target level in recent months but signaled that they expect to cut their benchmark interest rate just once this year.

Still, anxiety over still stubborn inflation helped drive down U.S. consumer sentiment for the third consecutive month. The University of Michigan’s consumer sentiment index, released Friday in a preliminary version, dropped to 65.6 this month from a final reading of 69.1 in May.

Retail executives say shoppers are still buying, but they’re being choosy about what they spend their money on.

Darren Rebelez, president and CEO of Ankeny, Iowa-based Casey’s Casey’s General Stores, Inc. which operates more than 2,600 convenience stores in 17 Midwestern states, noted shoppers remain resilient, but the company is also in a sweet spot. Roughly 25% of the chain’s customers have household income of less than $50,000, and seven of the bottom 10 most affordable states are in the stores’ footprint so customers can stretch their dollars further.

Still, Rebelez says customers are making choices like shifting away from candy because of skyrocketing cocoa prices and moving into baked goods like cookies, brownies and donuts. They’re also buying less bottled soda in favor of cheaper soda fountain beverages.

“They’re not giving up on their indulgences,” he said. “They’re just choosing to spend it differently so they can get a little more value for the money.”

Companies are also ramping up experiences as customers shift more of their money to services over buying stuff.

This spring, Lowe’s Inc, the nation’s second-largest home improvement retailer behind Home Depot, signed a multiyear agreement with Argentine professional soccer player Lionel Messi, Inter Miami CF and the upcoming soccer tournament Conmebol Copa América USA to play a role in its marketing and advertising campaigns.

Lowe’s is hoping to win over soccer fans with signage and in-stadium activations and community programming at a time when many shoppers are jumping around to different home improvement retailers for their projects and show no signs of loyalty. For example, select Lowe’s stores will host Conmebol Copa América watch parties.

“It’s a significant opportunity for us to grow, ” said Jen Wilson, Lowe’s chief marketing officer. “And so this is also an effort for us to make that relationship stickier.”

Pictured at top: Customers make purchases in a retail store in Northbrook, Ill., on May 13, 2024. (AP Photo | Nam Y. Huh, File)

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