Retail sales barely rose last month as Americans, troubled by persistently high inflation, tended to cut back on spending.
Retail purchases rose 0.1% in May, below the 0.2% increase analysts had expected, according to data released by the Commerce Department on Tuesday.
Retail sales for the previous month were revised down to 0.2%.
Of the 13 categories listed by the Commerce Department, five saw sales decline due to falling gasoline prices and furniture stores holding Memorial Day sales, according to government data.
The lackluster numbers mark a sharp decline in consumer spending after stronger numbers earlier this year, and economists now expect spending to continue at a moderate pace as U.S. consumers grapple with persistent inflation and a weakening job market.
“With consumer confidence plummeting again, households may not be as insulated from rising interest rates as we began to think,” Paul Ashworth, chief North American economist at Capital Economics, said in a client note.
Excluding gasoline, retail sales increased 0.3% in May. Compared to the same month a year ago, retail sales increased 2.3% in May.
Weak retail sales weighed on Wall Street stocks as major stock indexes posted modest gains.
The Dow Jones Industrial Average was up 0.03% around midday Tuesday, while the S&P 500 was up 0.12%.
The tech-heavy Nasdaq fell 0.11%.
Because private consumption accounts for about two-thirds of total economic activity, any signs of a slowdown could portend slower growth and increase the risk of a recession.
Part of the weakness was due to falling gasoline prices, which weighed on sales at service stations.
Sales at gas stations fell 2.2% in May from the previous month, while sporting goods stores, music stores and bookstores reported sales increases of 2.8%.
The national average price for a gallon of unleaded gasoline was $3.45 as of Monday, down from $3.59 a month ago, the AAA said.
Online retail purchases increased 0.8%, while bars and restaurants reported a 0.4% decrease.
Retail sales at furniture and home goods stores fell 1.1 percent.
Sales at clothing and accessories stores rose 0.9 percent, while electronics and appliance stores increased 0.4 percent.
However, sales of building materials and garden supplies fell 0.8%.
The Federal Reserve has been raising interest rates aggressively over the past two years in an attempt to achieve a “soft landing” that would curb inflation without plunging the economy into recession.
Inflation rose 3.3% year-on-year last month, down slightly from April’s headline inflation rate of 3.4%.
The latest data has raised hopes that the Fed may start cutting interest rates later this year.
Core inflation, which excludes volatile food and energy prices, rose 0.2%, also slightly less than expected.
This was down from 0.3% the previous month and the smallest increase since October.
Last week, the Fed said it would keep interest rates steady at about 5.3%, the highest level in 23 years, since July.
Economists said Tuesday’s Commerce Department report reflected growing consumer caution.
But they point to a silver lining: The weaker-than-expected retail sales reading makes it more likely that the Fed will start cutting interest rates within the next few months.
“Consumer spending is cooling in a pretty orderly way,” said Jeffrey Roach, chief economist at LPL Financial in Charlotte, North Carolina.
But he added that “what’s been shown so far suggests the economy could achieve a soft landing, especially if the Fed adjusts policy quickly as conditions change.”
With post wire
