Monthly retail sales data showed a 0.3% drop in May from April, the first spending cut since December. More troubling are the details about where consumers spend and don’t spend money.

Gas station spending rose 4% in May compared to April and rose 43.2% year-over-year due to sharp increases in gasoline prices.

Spending at grocery stores, where prices are also higher, rose 1.2% from April and 8.7% from last year.

Excluding spending at gas stations and grocery stores, spending at other retail stores was down 1% from the previous month.

A strong labor market and wage growth have kept consumer spending high in recent months, but the shift to higher spending at gas stations and grocery stores is a wake-up call for the US economy. Consumer spending accounts for about 70% of the country’s economic activity, and the retail industry as a whole has more jobs than any other business sector.

“Consumer sentiment is starting to suffer as ordinary Americans feel the pressure of high prices and reevaluate their shopping habits,” said Marwan Forzley, CEO of Veem, a payment system for small businesses. “If this continues, businesses could be impacted by lower consumer spending and worse economic forecasts for several months ahead.”
Part of the cost savings was money spent at car dealers. In May, consumers spent 4% less at car dealerships than in April. The shortage of computer chips and other parts has limited production in car factories and therefore limited the range of cars that consumers might want to buy. Lack of inventory has also led to a sharp increase in car prices, which may force some consumers out of the market.

Excluding spending at auto dealers, gas stations and grocery stores, other retailers’ spending was down just 0.1% from April. Many economists said the spending wasn’t all that bad, given the inflationary pressures consumers are facing.

“Given all the negative economic news and the financial pressure consumers are facing, retail sales figures held up relatively well in May,” wrote Neil Saunders, managing director of GlobalData, in a note on Wednesday.

The retail sales report focuses on purchases of goods rather than services such as airline tickets, movie tickets, or other forms of entertainment. And there are signs that demand for travel and movies is exceptionally strong right now as consumers move from spending on goods to spending on services they didn’t want to use earlier during the pandemic.

Restaurant spending is the only thing that counts as a service tracked on the retail sales report and has been quite strong, up 0.7% from spending in April and up 17.5% from last year.

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However, Saunders said that since overall retail spending growth is less than the overall price growth rate, it shows that consumers are cutting back on the amount of goods they buy, even if the amount they spend is holding up. .

“While the consumer still has purchasing power, it is not unlimited and independent of broader economic concerns,” he wrote.

The report comes out on the second day of the two-day Federal Reserve meeting. The central bank is considering how much it should raise rates to cut costs and curb inflation.

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