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Retail sales increase less than expected in May

Retail sales increased at a slower-than-expected pace in May as high interest rates and inflation continued to weigh on consumers.

Retail sales increased 0.1%, less than the 0.3% economists had expected. In April, retail sales ticked down 0.2%, according to revised data from the Commerce Department.

Excluding autos and gas, retail sales increased 0.1%, below estimates for a 0.4% increase but above the 0.3% decline in April.

Capital Economics chief North America economist Paul Ashworth noted Tuesday's retail sales reading adds to "signs that consumers are struggling a little."

"The soft May retail sales data support our view that, after a disappointing first quarter, GDP growth remains a little lackluster in the second quarter too," Ashworth said.

Within the report, gasoline stations led the declines, falling 2.2% from the month prior. Sales at furniture and home stores were also a laggard with sales falling 1.1%. Meanwhile, sporting goods and hobby stores were the biggest gainers, with sales rising 2.8% from the month prior.

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"Consumer spending is slowing because real income growth is moderating and because some consumers are becoming credit constrained amid elevated interest rates and rising credit card utilization," Oxford Economics deputy Chief US economist Michael Pearce wrote in a note to clients.

Others downplayed concerns with the print. In May, the retail sales control group, which excludes volatile categories and is the factor that feeds into the quarterly GDP reading, rose 0.4%.

Deutsche Bank chief US economist Matthew Luzzetti noted that was a "decent print." Over the past three months, the control group has seen its largest gains since December, per Luzzetti.

"The consumer is certainly slowing," Luzzetti said. "But at the moment I don't think it's a worrying trend. I think it's just getting back down to what we think is a more normal type of pace for the economy."

A clearance sign is displayed at a retail clothing store in Downers Grove, Ill., Monday, April 1, 2024. (AP Photo/Nam Y. Huh)
A clearance sign is displayed at a retail clothing store in Downers Grove, Ill., Monday, April 1, 2024. (AP Photo/Nam Y. Huh) (ASSOCIATED PRESS)

The report comes less than a week after the Federal Reserve's revised Summary of Economic Projections (SEP) showed the central bank estimating one interest rate cut this year. The commitment to high interest rates for longer than many had hoped has economists increasingly concerned that the restrictive policy could prompt a meaningful slowdown in the US economy.

Allianz chief economic adviser Mohamed El-Erian told Yahoo Finance on June 13 that the balance of risks for the Fed if it waits to cut in December "is in favor of them being too late and the economy slowing more than it should."

In the past week, the markets have increasingly priced in the likelihood of a September interest rate cut. On Tuesday, markets were pricing in a 67% chance of a cut in September, up from a 52% chance last week, per the CME FedWatch Tool.

Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.

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