A worker helps check out at a Costco store in Teterboro, New Jersey, on February 28, 2024.
Stephanie Keith | Bloomberg | Getty Images
Retail spending was weaker than expected in May as consumers continued to grapple with stubbornly higher inflation.
Sales rose just 0.1% month-over-month, a tenth of a percentage point below the Dow Jones estimate, according to a Commerce Department report Tuesday that is seasonally adjusted but not adjusted for inflation. However, the result was slightly better than the downwardly revised 0.2% decline in April.
Year-on-year sales increased by 2.3%.
Excluding cars, sales were worse, down 0.1% compared with estimates of a 0.2% increase.
The weakening in gasoline prices contributed to gas station revenue posting a 2.2% monthly decline. This was somewhat offset by an increase of 2.8% in sporting goods, music and book stores.
Online outlets recorded a 0.8% increase, while bars and restaurants recorded a 0.4% decrease. Furniture and home furnishings stores also reported a 1.1% decline.
Stock market futures remained almost unchanged after the report, while Treasury yields fell.
The report has investors excited about the direction of the economy and what it means for the future of the Federal Reserve’s monetary policy. Consumer spending accounts for about two-thirds of all economic activity. Therefore, any weakness could be a sign of slowing growth and at the same time prompt the Fed to start cutting interest rates.
Inflation numbers have been somewhat encouraging recently, but spending is showing signs of moderating as consumers have been under pressure from rising prices for more than two years.
A Commerce Department measure that the Fed uses as its main gauge of inflation showed an annual rate of 2.7% in April, or 2.8% if food and energy are excluded. The Fed targets inflation at 2%.
Market prices suggest the equivalent of two interest rate cuts of a quarter of a percentage point each this year, although Fed officials at their meeting last week hinted at the likelihood of just one. Following the retail data, traders in the Fed funds futures market increased their bets that the Fed would ease interest rates, even pegging a roughly 23% chance of three rate cuts this year, according to CME Group’s FedWatch Indicator year one.
Philadelphia Fed President Patrick Harker said Monday that it would only be appropriate to cut rates later this year if the data cooperates, saying he expects a single cut to be likely.
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2024-06-18 13:58:21
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