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Retail sales fell 1.3% in May as shoppers pulled back from their purchases of goods and shifted more of their spending to services.
The Commerce Department reported Tuesday that consumers cut spending on cars, furniture, electronics, building materials and other items last month as spending increased at restaurants, as more people were vaccinated against Covid-19 and trade restrictions eased.
Consumers are venturing out as the pandemic fades, spending more on service companies that have either been closed or operating with restrictions throughout the pandemic. Economists expect consumer spending to continue to drive the economic recovery this year.
Spending, driven in part by government stimulus, helped propel the broader US economy, which grew at an annualized rate of 6.4% in the first quarter. Economists predict that by the end of this year, GDP will reach the path it was expected to take unless the pandemic never happened — and then at least temporarily exceed it.
However, cars are in short supply as the global shortage of computer chips has left car dealers with a scarcity of inventory. As a result, car sales likely fell last month. “If you don’t have products, you have nothing to sell and that means lower revenue,” said Beth Ann Bovino, chief US economist at S&P Global Ratings.
The Labor Department said separately that the so-called producer price index rose 0.8% in May from the previous month, up from 0.6% in April from March. Economists are expecting separate economic reports on Tuesday showing industrial production increasing 0.6% in May.
Cars are in short supply after a shortage of computer chips has left car dealers scarce. Photo: Justin Sullivan/Getty Images
The recovery of the economy remains uneven. Employment gains lag GDP growth as millions of workers remain marginalized by factors such as expanding unemployment benefits, increased childcare responsibilities and fear of Covid-19. Consumer prices also rose last month from a year earlier, prompting concerns by some economists that the Federal Reserve won’t raise interest rates soon enough to contain inflationary pressures.
As pandemic restrictions wear off, consumers are spending more on services, which are not captured in the retail sales report other than restaurants and bars. The Commerce Department will release a more complete picture of total consumer spending at the end of the month.
Credit and debit card spending on many recreational services rose in May from April, albeit at a slower pace than earlier in the year when vaccinations and reopening businesses for the first time unleashed pent-up demand, according to data tracked by Earnest Research. In the four weeks ending June 2, spending at casinos was up nearly 17% from the previous four weeks, while consumers spent 9% more at theme parks and indoor recreation centers including bowling alleys, according to Earnest Research. Spending at gyms rose by about 4% over the same period.
The global shortage of chips affects how quickly we can take a car out of the shop or buy a new laptop. WSJ visits a factory in Singapore to learn about the complex process of making chips and how a manufacturer is trying to overcome shortages. Photo: Edwin Cheng for The Wall Street Journal
Americans are spending a little more on groceries and alcohol than they did at the beginning of this year. Commerce Department figures show they are bombing significantly more restaurants amid widespread reopenings.
Not every sector can benefit as the economy recovers broadly. The Commerce Department’s retail sales report largely covers spending on items such as furniture, sporting goods, and garden equipment. Consumers have flaunted these items throughout the pandemic, but are now holding off on some of them due to shortages and high prices.
Co-owner Danielle Sandusky said sales at Modern Bungalow, a Denver-based furniture store, have slowed sharply recently after doubling from the previous year for several months after the pandemic.
She added that newly minted homebuyers needed furniture to outfit their spaces, and others stuck inside spent more on household goods rather than travel earlier in the pandemic.
Consumers bought furniture from places like IKEA during the pandemic, but are now holding back. Photo: Brandon Bell/Getty Images
Ms Sandusky said she expects some degree of decline as the economy reopens and consumers have more choices to spend. She added that bottlenecks in the supply chain created additional challenges. Many Modern Bungalow suppliers are struggling to quickly deliver furniture to the retailer due to a shortage of raw materials including wood, foam, polywood and recycled plastic.
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For example, a custom-made Amish food package is designed within 8 to 10 weeks and then shipped to a Modern Bungalow within 1-2 weeks. Now it takes 14-16 weeks to build this piece and 2-3 weeks to ship.
Upholstered furniture used to arrive in six to eight weeks, and now takes up to six months, Ms Sandusky said. She said long waiting times prevent some customers from continuing with their purchases.
“They say, ‘Well, if it’s not until October and November anyway, I’ll just wait. I’m going to spend my money now on restaurants and travel and whatever and then I’ll see where I am in the fall and order something after that,'” Ms. Sandusky said. That by winter, “we’ll be back at it, and it will be normal.”
– Gwen Gilford contributed to this article.
Write to Sarah Chaney Cambone at [email protected]
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