Nicholas A. Juhle, CFA®

Chief Investment Officer

May Retail Sales – More at the Pump, Less at the Dealership

May retail sales up 8.1% year-over-year; down 0.5% after inflation.  In real terms, retail spending came in slightly below levels observed in May 2021 when retail sales jumped nearly 30%.  Increased spending on gasoline (+43% YoY) accounted for a large portion of the nominal increase, but strength was also evident in brick and mortar retail (+25.6%) and food services and drinking places (+17.5%) both of which outpaced inflation.  The data suggests American consumers have continued to spend in discretionary categories even as prices rise at the fastest pace in 40 years.  Historically, real year-over-year declines in retail spending have been one of many leading indicators of a recession although this indicator alone has proven more volatile and has produced several false positives over the years.  In the context of other recession indicators we monitor including unemployment levels and the yield curve, we believe the risk of entering a recession in the next twelve months, while heightened, remains relatively low.

May retail sales down 0.3% month-over-month (-1.3% adjusted for inflation).  The overall value of retail purchases declined 0.3% in May after a downwardly revised +0.7% (+0.9% originally reported) in April – estimates called for a 0.1% advance.  This is the first month-over-month decline in five months with softness driven by a plunge in vehicle and other big-ticket purchases, suggesting moderation in demand for goods amid persistently elevated inflation.  Auto sales dropped 3.5% in May, while gas receipts jumped 4.0%.