"Starting early" but lacking follow-through? US May retail sales may see a significant decline

Due to the possibility of price increases resulting from tariffs, consumers have been shopping early, leading to a potential significant decline in retail sales in the United States in May. Economists predict that American consumers have slowed down their use of credit and debit cards in that month, indicating a cooling enthusiasm for overall consumption. According to a survey by FactSet, retail sales in the United States in May are expected to decline by 0.7% from the previous month, a stark contrast to the meager 0.1% increase seen in April. Economist Sam Tombs of Pantheon Macroeconomics predicts that retail sales in May may drop by 1%, which would be the largest monthly drop since March 2023. The U.S. Census Bureau will release the latest preliminary monthly data on retail and food service sales on Tuesday morning, which investors are closely monitoring. One of the main contributors to the overall decline in retail sales is the decrease in sales at gas stations due to falling gasoline prices. Additionally, spending on cars and home improvement products is also expected to be weak. Excluding cars, retail sales in May are expected to rise by 0.1%; whereas the "Retail Trade Leading Index Model" from the Federal Reserve Bank of Chicago estimates this growth to be 0.3% after seasonal adjustment. The "core retail sales data," which excludes cars, gasoline, building materials, and food services, is expected to rise by 0.2% compared to April, and this data is crucial for GDP calculations. Data from U.S. banks show that household spending on credit and debit cards increased by 0.8% year-on-year in May, slightly lower than the 1% seen in April. However, after seasonal adjustment, spending actually decreased by 0.7%. In terms of specific categories, restaurant spending remains steady, while expenditures on accommodation and air travel have increased slightly. However, the biggest declines are seen in home improvement, gas, and grocery spending. Despite the apparent weakness in monthly spending in May according to U.S. bank data, Aditya Bhave, an economist at the bank's global research department, points out that the Census Bureau's seasonal adjustment model takes into account holidays, the number of days in the month, and consumer patterns, which may alleviate some of the impact of the data decline. Tombs also added, "Apart from certain categories, overall retail consumption is still relatively robust, partly because consumers have not yet felt the full effects of significant tariff-related price increases. However, as price pressures intensify in the coming months, post-tax real incomes are squeezed, and the job market weakens, actual consumer spending is likely to face more challenges."