US retail sales unexpectedly drop in May

The US retail sales dropped by 0.3% in May, falling below expectations for 0.2% rise and against downwardly-revised 0.7% increase in April, while core retail sales, which exclude gasoline, automobiles, food services and building materials and offer more accurate information about consumer spending component of gross domestic product, rose by 0.5% last month, ticking above 0.4% in April, but also disappointing forecast for 0.8% increase.

Unexpected drop last month was mainly driven by decline in sales of motor vehicles, amid persisting shortages of certain parts, as well as record gasoline prices, (the average price hit the all-time high at $4.43 per gallon) which caused reduction in spending on other goods.

A gradual shift of spending from goods to services also reflected in the decline of retail sales, although the retail sales are mainly goods, with restaurants and bars being the only category that contributes to the report.

Economist expect the retail sales to remain weak, as inflation continues to rise and hit a 40-year high in May that prompts the US Federal Reserve to tighten its monetary policy more aggressively, in attempts to cool down the inflation and push it towards central bank’s 2% target.