Economist React To May Retail Sales Data: 'Consumer Spending Is Cooling In A Fairly Orderly Fashion'

U.S. retail sales for May fell short of expectations, concerning economists, as it could signal a slowdown in economic growth.

The U.S. Census Bureau reported that sales ticked up 0.1% from April to May, missing expectations of a 0.2% month-on-month increase.

May sales, which totaled $703.1 billion, were up 2.3% from a year ago, while sales for the March 2024 to May 2024 period gained 2.9% from the same period a year earlier, the agency reported.

Nonstore retailers were up 6.8% from last year, while food services and drinking places were up 3.8 % from May 2023.

The market reacted calmly to the retail sales miss, as exchange-traded funds in the retail and food services sectors saw little movement by mid-morning on Tuesday.

Price action: S&P Retail ETF XRT remained unchanged, while VanEck Retail ETF RTH edged up 0.06% and Amplify Online Retail ETF IBUY gained 0.17%. Meanwhile, Invesco Food & Beverage ETF PBJ went up 0.30%, First Trust Nasdaq Food & Beverage ETF FTXG slipped 0.38% and Veg Tech Plant-based Innovation & Climate ETF EATV gained 0.44%.

Major retailers had mixed reactions to the latest retail sales numbers. Walmart Inc. WMT went up 0.35% by mid-morning on Tuesday, while Amazon.com Inc. AMZN slipped 0.90% and The Home Depot, Inc. HD picked up 1.31%.

Economists and financial experts weighed in on the latest retail sales data to explain the implications for the market.

Also read: US Stocks Mixed; Retail Sales Increase 0.1% In May

Resilient consumer to the rescue

Chris Zaccarelli, chief investment officer, Independent Advisor Alliance, said retail sales came in really light on Monday morning and “while that may be good news for inflation hawks, it could be the beginning of a slowdown in growth,” which would hurt a lot more than a couple of interest rate cuts would help.

He said the resilient consumer has been “the big story of this bull market” and without them, the economy would have slowed or fallen into recession a long time ago.

Zaccarelli noted that stock prices are going up without the help of rate cuts because corporate profits and the economy continue to expand.

“Without the consumer, this bull market is going to stall out, so investors need to see more consumer spending and not a material slowdown, which this report could be indicating,” he wrote.

Industrial Sector ‘In Low Gear’

Bill Adams, chief economist, Comerica Bank, remarked that industrial production was stronger than expected in May, but revisions were negative while capacity utilization was up on the month but still well below its 2022 peak.

He noted that the motor vehicle assembly rate “edged up a little” on the month and was 5% above its 2023 average.

“The industrial sector is operating in low gear, adding to forces pushing inflation lower,” he said.

“The big picture is that the industrial sector has been running cooler over the last year and a half.”

He said that American consumers have shifted spending priorities toward experiences and away from things, weighing on demand for goods, and high interest rates are restraining business capital spending and demand for construction materials.

He noted that May retail sales figures suggested that real GDP continues to grow more slowly in the second quarter of this year than in the second half of 2023.

‘Consumers Retrench’

Jeffrey Roach, chief economist at LPL Financial, noted that restaurant spending fell in May “as consumers retrench” but that motor vehicle sales rose as dealers increased incentives to entice consumers. He also said, however, that several retail categories such as furniture sales fell for the fourth time in six months as consumers pulled back purchases.

“Consumer spending is cooling in a fairly orderly fashion,” he wrote. “So far, the economy could pull off a soft landing, especially if the Fed is quick to adjust policy as conditions change.”

‘Analysts Concerned’

Quincy Krosby, chief global strategist at LPL Financial, noted that the latest retail sales report pushed Treasury yields lower by coming in weaker than expected, but the downward revision for two previous months has “analysts concerned” that lower and middle income wage earners are under pressure from higher prices.

“Should employment data, particularly initial unemployment claims, continue to indicate a more defined softening in the labor market, the Fed may — as suggested by Fed Chair [Jerome] Powell–need to recalibrate its timetable in terms of when to commence policy easing,” she wrote.

Read now: The ‘AI Big 10’: 10 AI Stocks Now Comprise 28% Of The S&P, Up From 14% In 2023

Image created using artificial intelligence via Midjourney.