NEW YORK (AP) — Americans unexpectedly cut spending in May from the previous month, underscoring how soaring inflation on daily necessities like gasoline is pushing them to be more cautious about spending money. purchase of discretionary items. WE
NEW YORK (AP) — Americans unexpectedly cut spending in May from the previous month, underscoring how soaring inflation on daily necessities like gasoline is pushing them to be more cautious about spending money. purchase of discretionary items.
U.S. retail sales fell 0.3% last month, from a revised 0.7% increase in April, the Commerce Department said Wednesday.
A sharp drop in auto sales, mainly due to higher prices and a shortage of new car inventory, dragged down retail sales. Excluding automobiles, retail sales even increased by 0.5% last month. But excluding gas station sales, retail sales fell 0.7%, showing how much higher prices at the pump explain more of shoppers’ overall spending.
The report also highlighted shoppers pushing back on some of the products that were in high demand at the height of the pandemic but are now out of favor. Sales fell about 1% for furniture and home furnishings stores and electronics and appliance retailers. Building supply and garden stores, as well as general merchandise retailers, are also showing signs of slowing sales.
Online sales fell 1% as shoppers returned to physical stores. At the same time, food store sales rose 1.2% due to higher prices, not increased consumption. Restaurant activity was up 0.7%.
The retail report released Wednesday covers only about a third of overall consumer spending and does not include services such as haircuts, hotel stays and airline tickets.
“The price spike could finally weigh on real consumption,” said Andrew Hunter, senior economist at Capital Economist.
The snapshot comes as Americans have provided essential support to the economy, even after a year of soaring prices for gas, food, rent and other necessities. And the signs of recession risks are increasing. Inflation is at its highest for 40 years. Stock prices are collapsing. The economy actually contracted in the first three months of this year. And the Federal Reserve is making borrowing much more expensive.
Among the biggest concerns is the surge in inflation, which has become more widespread and persistent than expected. Consumer prices rose 8.6% last month from a year earlier, the biggest annual 12-month jump since 1981. The much higher prices for everything from plane tickets to meals at restaurant to new and used cars, have helped fuel the surge.
Meanwhile, the national average price at the pump hit $5.01 a gallon on Tuesday, from $4.45 a month ago, and has jumped more than 60% in a year.
Russia’s invasion of Ukraine has worsened global food and energy prices. Extreme lockdowns in China due to COVID-19 have worsened supply shortages.
On Wednesday, the Fed raised its benchmark interest rate, which affects many consumer and business loans, by three-quarters of a percentage point. This is the Fed’s biggest rate hike since 1994, and it heralded more significant rate hikes to come that would increase the risk of another recession.
Sal Guatieri, senior economist at BMO Capital Markets Economics, said the weak retail sales report is unlikely to sway the Fed as it will have to see a “prolonged period of weakness in domestic demand and likely labor markets.” before breathing a sigh of relief. on the inflation front.
Clearly, retailers big and small are noticing that customers are changing their habits in recent months.
Last month, major retailers like Target reported a faster-than-expected shift from sofas and casual wear that were in high demand at the height of the pandemic to more pre-pandemic routines. They also see shoppers focusing more on basics and opting for cheaper products while juggling higher day-to-day costs. Target said earlier this month it was canceling orders for items such as sofas and cutting mounds of unwanted inventory while raising prices elsewhere to offset rising costs.
Melissa Baker, founding partner of Fenwick Brands, a Birmingham, Alabama-based venture capital firm that focuses on consumer brands, cites new behaviors as gas at the pump continues to climb. At $4 a gallon, shoppers opted for cheaper brands, for example. But as gas hits $5 a gallon, she finds they also change their behavior before venturing out, limiting their runs to save gas.
Arie Kotler, chairman, president and chief executive officer of Arko Corp., one of the largest operators of convenience stores in the United States, primarily in rural areas and small towns, said rising prices for l Gasoline somewhat encourages customers to fill up with gas at its service stations. both to control their spending. Customers are also buying bigger bags of snacks like potato chips to save on travel. In response to customers’ financial difficulties, the chain offers cheaper coffee and food such as a slice of pizza for $1.99. Still, Kotler said the company is in an ideal position since it sells everyday items.
“We’re trying to help our consumers because we know they don’t have discretionary income and the money they have is far less than they had last year,” he said.
AP Economics Writer Chris Rugaber in Washington contributed to this report.
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Anne D’innocenzio, Associated Press