Retail sales fell 0.9% in May, worse than expected as consumers pulled back

Key Concepts:

• Retail Sales (Smart Retail Sales, Ex Autos, Ex Autos & Gasoline, Control Number/Core Retail Sales)
• Import Prices (Overall, Ex Petroleum, Year-over-Year)
• Export Prices (Month-over-Month, Year-over-Year)
• Deflation
• Trade Deficit
• Economic Indicators

Retail Sales Analysis:

• Smart Retail Sales (Overall): May shows a significant decrease of -0.9%, substantially lower than the expected -0.5% to -0.6%. This follows a strong increase of 1.7% in March, the highest since the beginning of 2023, suggesting a potential payback or temporary slowdown after a period of heightened activity.
• Retail Sales Ex Autos: Decreased by -0.3%, falling short of the expected increase of 0.2%.
• Retail Sales Ex Autos & Gasoline: Declined by -0.1%, marking only the second negative month of the year (excluding the -0.4% at the very beginning of the year). This was below the anticipated increase of 0.3%.
• Control Number (Core Retail Sales): A positive indicator, increasing by 0.4%. This exceeded expectations and compares favorably to the 0.5% increase in March. This metric has shown strong upward momentum, with the only recent decrease being a revised -0.1% last month (originally reported as -0.2%).

Import Prices Analysis:

• Overall Import Prices (Month-over-Month): Remained unchanged (0.0%), deviating from the expected deflationary decrease of -0.2%.
• Import Prices Ex Petroleum (Month-over-Month): Increased by 0.2%, indicating that the lack of overall deflation was influenced by rising prices outside of petroleum. This increase, while positive, is slightly lower than the 0.4% increase in the previous month (April 2024), which was the highest since April 2023.
• Import Prices (Year-over-Year): Increased by 0.2%, matching expectations. This compares to a 0.1% increase in the previous month and a high of 1.7% in February, suggesting a cooling trend in import price inflation.

Export Prices Analysis:

• Export Prices (Month-over-Month): Experienced a significant decrease of -0.9%, the most substantial negative month since May 2023. This decline in export prices may reflect broader economic challenges in economies outside the U.S.
• Export Prices (Year-over-Year): Increased by 1.7%.

Logical Connections and Synthesis:

The report presents a mixed picture of the economy. While core retail sales (the control number) show continued strength, the overall retail sales figures indicate a potential slowdown in consumer spending. Import prices, while not decreasing as expected, show a cooling trend year-over-year. The significant drop in export prices is a concerning signal, potentially reflecting weakening global demand. The speaker notes that falling import prices and imports in general have really dropped the trade deficit.

Notable Quotes:

• "This is much more aggressive to the downside than we were expecting" (referring to the -0.9% smart retail sales figure).
• "That might say something more about outside economies than the US economy" (regarding the -0.9% drop in export prices).