Retail Sales See Unexpected Rise, but Fashion Stores Miss the Gains

Consumers are powering through a twisty economy — but they’re prioritizing food and e-commerce and backing off at fashion stores.

May retail and food service sales rose 1.6 percent from a year earlier, according to the Census Bureau’s latest reading of spending on Thursday.

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That modest gain was hard-fought given that prices across the economy have been on the rise — increasing 4 percent year -over-year last month — sapping consumer spending power and forcing lower-income shoppers to prioritize necessities.

Still, consumers overall are holding up better than many expected, supported by a strong labor market that has defied repeated interest rate hikes aimed at cooling off the economy over the past year.

Comparing May with April, seasonally adjusted sales inched up 0.3 percent, a stronger showing than the 0.2 percent decline economists projected, according to FactSet.

Apparel and accessories specialty stores sales fell 0.2 percent from a year earlier, while department stores fell 3.5 percent.

Instead, the monthly gains were powered by food services and drinking places, where May sales rose 8 percent, and non-store retailers, which gained 6.5 percent showing the continuing advance of e-commerce.

Jack Kleinhenz, chief economist at the National Retail Federation, said, “This was a positive report with no sign of an abruptly slowing economy despite what has happened with inflation and interest rate pressures. Even though shoppers dialed back in some categories on a year-over-year basis, these numbers confirm that consumers still have the capacity to spend. Job growth and wages are providing buoyancy, although inflation continues to take a bite out of consumer income. May is typically a strong month for retail as spring shopping hits its peak, but above-average temperatures and below-average precipitation no doubt played a favorable role.”

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Neil Saunders, managing director of GlobalData, said his company’s reading of spending showed that the month was “helped along by a relatively strong Memorial Day…which gave consumers something of an excuse to spend.”

“Our impression is that, without Memorial Day, the sales numbers would have been materially weaker,” Saunders said. “This underlines an important facet of the current economy: namely that a growing reluctance to spend among those that have money is just as important as an inability to spend among those that don’t have robust finances. Retailers need to give permission and encourage shoppers into buying and events are one way of doing that.”

The consumer picture might only get dicier.

After a pause, the Federal Reserve is expected to continue raising interest rates this year, making it harder still to borrow money. And the debt ceiling deal in Washington, while averting economic disaster, also means that some 43 million Americans will have to start repaying their student loans again in September when a pandemic-era reprieve finally ends.

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