U.S. retail sales took a sharp downturn in May, driven largely by a downturn in the demand for vehicles, according to a Commerce Department report released Wednesday.
Retail sales fell by 0.3% in May, the first decline in five months, a sizeable drop from April’s 0.7% increase. When adjusting for a 1% increase in inflation for May, retail sales fell by over 1% for the month, according to Market Watch.
“While it’s only one month, this is a sign that higher prices are starting to thwart consumer demand,” Katherine Judge of CIBC Economics told Market Watch.
Economists polled by the Wall Street Journal and a Dow Jones estimate both predicted a 0.1% increase, so a decline is not only noteworthy but unexpected. It is also a significant indicator of the economic outlook amid high inflation and supply chain issues.
The automotive industry fueled the downturn as vehicle and parts sales fell 3.5% in May. In fact, the Commerce Department noted that excluding vehicle sales from the report caused retail sales to rise by 0.5% for the month of May.
Christopher Rupkey, FWDBONDS Chief Economist, told Yahoo! Finance that a “price shock” caused consumers to pull back spending for May, alluding to inflation. However, he noted that overall retail sales were up compared to one year earlier.
“Total sales for the March 2022 through May 2022 period were up 7.7 percent (±0.7 percent) from the same period a year ago,” the report noted.
Not every retail sector showed a slump in May. In fact, only four of the 13 key areas of spending for consumers showed a decrease in sales for the month.
Gas sales were up in May despite the national average price rising above $5 per gallon. Spending on gas was up 4% for the month, May’s gas sales rose 43.2% when compared to a year prior due to rising oil prices and the Russia-Ukraine war.
When excluding both auto and gas sales, retail sales showed a rise of only 0.1% in May.