Retail sales in the United States fell in May, delivering a downside surprise as analysts generally predicted solid spending by American consumers, whose willingness to keep shopping is key to averting what a growing number of economists warn is a looming recession.
The retail sales dip was driven mostly by a 3.5 percent decline in auto purchases, with significant contributions from declines in electronics (minus 1.3 percent) and furniture (minus 0.9 percent).
"Rising borrowing costs, falling equity markets (and household wealth) and concerns about the outlook for the housing market all risk dampening spending," the analysts wrote. "At the same time there is evidence that the rate of wage inflation is slowing, which will mean ongoing erosion of spending power."
"For spending to continue growing strongly we will need to see households run down their savings or accumulate debt at an even faster rate, which we increasingly doubt will happen," they added.
Consumer spending is a key driver of the U.S. economy, accounting for around two-thirds of GDP.
The U.S. economy contracted by 1.5 percent in the first quarter. With a recession generally defined as two successive quarters of falling GDP, a second-quarter contraction would make an economic decline official.
Some analysts reacted to Wednesday's disappointing retail sales data by saying that it points not to a looming recession but one that's already here.
"Retail sales are not adjusted for inflation. So if prices rise 5%, even if the same amount of goods are sold, sales should be up 5%. However, besides missing expectations, they were down -0.3% vs +0.7% in Apr, even with the CPI +0.7% in May," he wrote, adding, "Recession is already here."
Other analysts pointed to hopeful signs in the retail sales data, such as solid spending on food services and drinking places, which advanced 0.7 percent in May.
"Bar and restaurant sales were up 17.5 percent year-over-year and were the third-biggest month-over-month gainer, which suggests consumer strength and pent-up demand," Ted Rossman, Senior Industry Analyst at Bankrate, told The Epoch Times in an emailed statement.
"If people were really worried about inflation, you would think that dining out would be a discretionary expense that would be easy to cut back on, so I see this as a positive data point for consumer confidence,” he added.
Soaring inflation has had a chilling effect on consumers, with the Michigan Consumer Sentiment index tumbling to 50.2 in June, the lowest level on record.