U.S. retail sales slipped 0.2% in May. That’s the biggest monthly fall in two years, although quite a bit of the drop last month was due to a sharp decline in gasoline sales. Nonetheless, the revised data tell us that retail sales have fallen for two months in a row—the first back-to-back monthly declines since 2010. Looking at retail sales on a year-over-year basis is more encouraging, but the trend is still slipping on this front too.
Only a handful of economic reports for May have been released so far and so it’s premature to comment on last month’s macro profile overall. Perhaps the tumble in gasoline sales—a plus for the economy to the extent that it reflects lower gas prices—is skewing the top-line number. But if the overall retail consumption number is the more reliable indicator, it looks like the spring slowdown has legs.
Whatever the cause, the strength in the first quarter is clearly history for now. Short of a dramatic revision in the numbers (or a magnificent June report), retail sales for Q2 are on track for a reversal of fortune relative to the first three months of 2012.
The annual pace of retail sales looks quite a bit better. The 5.5% rise for the 12 months through May is a strong number in historical terms. The worry is that the decelerating rate of growth that’s prevailed for some time will roll on.
It’s debatable if the softer side of the economy of late is due to temporary effects born of the euro crisis vs. internal cyclical troubles. The distinction will be lost, of course, if a recession arrives. But some analysts say that the blowback from Europe is the main impediment to U.S. growth at the moment and so the sluggish economic numbers in recent months are only temporary—assuming the euro disease ends, or at least lessens soon. That may be expecting too much, but that’s the best offer available at the moment if you’re searching for optimism. Unless you buy into the argument that the recent weakness is all about slumping gasoline sales courtesy of falling fuel prices.
"It's basically all about cautious spending,” advises Peter Cardillo, chief market economist at Rockwell Global Capital. “A little disappointing but it's something that the market was expecting, that consumers remain quite cautious. It's all due to the decline in energy sales. Other components show modest spending."
Quite true. Retail sales less gasoline station sales rose a bit in May: +0.1%, comfortably better than the -0.2% loss in the top-line number. Is that a critical distinction? Perhaps we’ll find out tomorrow with the weekly update on initial jobless claims. If the economy is truly slowing, the deterioration will soon reveal itself in no uncertain terms by way of an increase in new filings for unemployment benefits. So far, however, the claims numbers suggest that the labor market is still expanding, or so last week’s report implies. Is it time to revise that outlook? Stay tuned….