Retail sales fell by 0.2% in May, in line with consensus expectations. In today’s report, April results were also revised downward from an increase of 0.1% to a decline of 0.2%. Sales growth for the last 12-month period slowed to 5.3%. Retail sales growth has now been negative for two consecutive months, after posting solid gains early in the year.
Falling gasoline prices provided a bit of relief to drivers, but were a drag on overall retail sales. Today’s report would suggest that consumers pocketed those savings rather than spending more freely on other goods.
One relative bright spot was in auto sales, which were 1.0% higher on the month and have posted a double-digit increase of 11.0% over the past twelve months. Excluding auto sales, retail sales fell more sharply in May, dipping 0.4%. While demand for automobiles and appliances were still firm in May, further deterioration in jobs data and confidence would almost certainly prod consumers to trim spending on big ticket items in the months ahead.
The downward trend in sales appears to be tracking recent weakness in jobs creation and slipping consumer confidence. As a whole, the retail sales data are consistent with other recent measures of economic activity, suggesting the U.S. economy is on a slowing growth path. The question that remains unanswered is whether this weakness is merely a temporary payback from unexpected strength in sales earlier in the year or if the slowing trend will continue. Evidence is starting to tip toward a broader slowdown, with the risk of a recession rising.
The threat of recession, in conjunction with the ongoing European debt crises, will likely weigh down the risk-off end of the risk-on/risk-off scale, balanced by anticipation of additional stimulus from the Fed in the face of further deterioration of economic data. We continue to expect some teetering between the two ends of that scale, and resulting market volatility, before the scale is definitively tipped and greater clarity around the near-term direction of the economy is achieved.
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