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US retail sales data reveals slowing expansion

Although US retail sales growth remained in positive territory during May, the numbers show evidence of a slight downtick in the rate of expansion.

This was driven by weaker performances from both automotive and foodservice, although pure retail held up better with a growth rate only slightly down on that of April.

Looking behind the numbers reveals an interesting trend in that the slowdown appears to have come from bigger ticket sectors. Automotive is the most obvious area, with car sales down by around 15.6 per cent in unit terms on the prior year. Within retail, the previously good growth in furniture sales has gone into reverse with furniture and home stores reporting a 0.8 per cent decline in year-on-year revenues.

This trend fits neatly with recent consumer confidence data which shows a very mixed picture of sentiment – where people are more satisfied with their own personal financial positions, but less confident about the future of the economy. When this is the case consumers tend to be more cautious about bigger purchases, many of which are bought on credit and paid off over a period of time. Less affected are the everyday and smaller purchases, which consumers still feel comfortable making.

That noted, not all smaller ticket retail categories fared well, with a  very mixed performance at sector level.

Clothing continued to come under pressure during the month with sales sliding by 2.4 per cent. The weather was helpful, but strong levels of discounting across the sector and a slight boredom with apparel from consumers were both unfavorable headwinds. Comparatively sports retailers had a good month, helped by a strong lead up to Memorial Day as consumers prepared for the summer season of outdoor activities.

Home improvement retailers performed well with a 5.2 per cent uplift in sales over the prior year. Strong demand from home movers boosted revenue, as did the relatively warm weather which fueled the sales of outdoor and gardening items. Equally resilient was beauty and drug, which was the star performer this month.

Outside of pure retail, foodservice grew, but by a much reduced rate. Tough comparatives from last year and heavy competition on price across the month are both likely to have put a dint in the sales line.

Overall, May was not a bad month for retail but the numbers contain warning signs that households are still cautious about spending. There are also, we have noted from Conlumino’s consumer polling, rising concerns over future interest rate increases. This is not yet having a tangible impact on spending decisions, but if implemented a rate rise could well act as a further brake on retail growth.

  • Neil Saunders is CEO of retail analyst Conlumino.

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