Investing.com – Analysts from Wells Fargo (NYSE:) noted on Tuesday that weaker-than-expected May data indicated a decline in consumer spending.
Retail sales data for May came in slightly lower than expected, rising just 0.1%. Furthermore, there were downward revisions to previous months' data, implying a weaker spending environment in the second quarter.
Despite this, Wells Fargo analysts believe the situation is not as bleak as it seems, arguing that the weakness observed in May can be attributed in part to lower commodity prices, suggesting that inflation-adjusted sales were likely higher than the data indicates.
Details of sales data reveal a mixed picture. Sporting goods stores saw the biggest gains with sales increasing 2.8%, reversing two straight months of declines. Car sales also contributed positively, growing by 0.8%. However, when car sales are excluded, total sales fell 0.1% last month.
Analysts also point out that the 0.4% decline in sales at food service stores, especially restaurants, is a worrying sign on the entertainment side of the economy. Inflation-adjusted restaurant sales fell 2.5% year-to-date through May, according to their estimates.
Despite these challenges, Wells Fargo analysts stress that May retail sales data indicate that consumers are gradually losing momentum. They highlight that sales in the wider control group, which feeds directly into the BEA's calculations of real goods spending in the national accounts and excludes sales of cars, petrol, building materials and food services, rose by a stronger 0.4% in May.
However, they expect consumer slowdowns in the future due to factors such as slower uptake of revolving credit, higher delinquency rates, moderating income growth, and increasing consumer pessimism about their financial situations. They also point to a shift in consumer behavior, with growth in non-discretionary purchases starting to outpace discretionary purchases, a trend that retailers echoed in their most recent earnings reports.