US Retail Sales Post Modest Gain in May, Missing Consensus

The US retail sector registered a lackluster performance in May, with headline sales posting a meager 0.1% month-over-month (m/m) gain, falling short of economists' expectations of a 0.3% increase. The disappointing outcome was partly attributed to falling gasoline prices, which offset gains in other categories.

On an annualized basis, retail sales excluding autos and gas stations (retail sales ex autos) remained flat, underscoring the continued caution among consumers. The report also marked the second consecutive month of lackluster retail sales growth, casting doubts over the strength of the US consumer-led economic recovery.

The data released by the US Department of Commerce on Friday showed that retail sales excluding autos and gas stations (core retail sales) fell 0.1% m/m, missing consensus estimates of a 0.2% rise. The decline was broad-based, with five out of the 13 tracked categories recording declines, including gas stations (-2.2%), home furniture (-1.1%), building materials/garden (-0.8%), food services/drinking places (-0.4%), and food/beverage stores (-0.2%).

On a bright spot, however, some retail segments bucked the overall trend, with sporting goods retailers posting a robust 2.8% gain, online stores recording a 0.8% increase, and car dealers registering a 0.8% rise.

The report also offered some support to the narrative that the US economy is heading towards a so-called 'soft landing', which implies a gentle slowdown in growth without slipping into recession.

The latest retail sales data comes on the heels of a string of soft economic readings in May, including weaker-than-expected jobless claims and manufacturing activity numbers. The dovish tone from these reports has further boosted expectations for an interest rate cut by the Federal Reserve (Fed) at its next policy meeting scheduled for September 18.

The Fed, which has been grappling with inflationary pressures and concerns about the impact of trade tensions on the economy, is widely expected to cut rates by 25 basis points (bps) at its next meeting. The US central bank last cut interest rates by 50 bps in July to a range of 2% to 2.25%.

In closing, while the May retail sales numbers may have disappointed some economists' expectations, they are unlikely to alter the Fed's stance on monetary policy anytime soon. The Fed has made it clear they want to continue to see signs of slowing inflation and increasing labor market weakness before they signal it is appropriate for a cut.

This retail sales data also suggests that overall the retail sector could be poised for weakness in June, with the exception of sports retailers, ecommerce and car dealers.