US retail sales rise below expectations in May
In May, U.S. retail sales saw a marginal increase of 0.1%, missing expectations of a 0.3% rise and highlighting continued economic sluggishness in the second quarter. The previous month’s data was revised significantly downward to a 0.2% decline, indicating weaker economic activity than initially reported.
Core retail sales, which exclude automobiles, gasoline, building materials, and food services, rose 0.4% in May following a revised 0.5% drop in April. This modest growth in core sales underscores the impact of inflation and higher interest rates on consumer behavior, as households prioritize essential expenditures over discretionary spending.
The subdued retail sales figures strengthen economists’ forecasts that the Federal Reserve might commence interest rate cuts as early as September. However, Federal Reserve officials have recently suggested that the anticipated rate cut might be postponed until as late as December.
Several factors contribute to the slowing trend in sales growth. Banks have been tightening access to credit, particularly affecting lower-income borrowers who are increasingly struggling with loan repayments. While the labor market remains robust, the ease of finding new employment for those who lose their jobs has diminished, and wage growth is decelerating.
Additionally, household savings have declined, yet consumer spending remains sufficient to support ongoing economic expansion. Despite these challenges, the Federal Reserve maintained its benchmark overnight interest rate in the range of 5.25%-5.50% during its latest meeting and projected only a single quarter-percentage-point reduction for the year.