June 18, 2024

Retail sales rose 0.1% in May after declining 0.2% in April.  In the past year retail sales have risen 2.5%.  However, retail sales have been essentially unchanged since the end of last year.

Motor vehicle sales rose 0.8% in May after declining 0.4% in April  In the past year car sales have risen 1.4%.

Retail sales ex autos and gas, which eliminates the two most volatile components and is a better gauge of the trend pace of sales, rose 0.1% in May after having declined 0.3% in April.  In the past year this so-called core spending pace has risen 2.9%, but in the first five months of this year it has declined 0.4%.  Clearly, the pace of consumer spending is beginning to slow as higher inflation and falling real income finally begins to take its toll.

Restaurant sales declined 0.4% in May after having risen 0.4% in April.   In the past year restaurant sales have risen 4.1%.   But since the end of last year restaurant sales have actually declined slightly.  Given the dramatic runup in food prices in 2022 and 2023 it appears that diners are choosing to dine out less often and/or choose less expensive restaurants to patronize.

Sales at nonstore retailers rose 0.8% in May but they dropped by 1.8% in April.   In the past year nonstore sales have risen 7.4% but, like most other categories of sales, they have been essentially unchanged since the end of last year..

The problem is that inflation has been rising more quickly than sales and, as a result, real retail sales have been declining in real terms.  Our income has been rising and we kept spending, but the amount of goods and services we were able to purchase with our fatter paycheck was somewhat less than it was a year ago.  Real retail sales rose 0.1% in May after having declined 0.5% in April.  Real sales have declined 0.7% in the past year.

GDP seems on track to increase 2.8% in the second quarter as firms keep creating a respectable number of jobs each month, and the unemployment rate remains at the 4.0% full employment threshold.  However, consumers are running up their credit card bills in the process in an effort to maintain their style of living.  Unfortunately, credit cards are a very expensive way to add debt.  By doing so, it is clear that the consumer is beginning to struggle.  We are apparently seeing signs that consumer spending is finally beginning to slow.

Stephen Slifer

NumberNomics

Charleston, SC