Americans are starting to pull back on spending in the face of rising gas prices and interest rates. US retail sales dropped slightly in May from the previous month—by 0.3%—and were below economists’ expectations of a small increase.
Most of the drop can be attributed to flagging car sales, which fell 3.5%. Excluding cars, overall retail sales rose. But Americans also spent less on furniture, electronics, online shopping, and personal care.
“Some people may be deciding that now isn’t the best time to make one of these large purchases, especially with inflation rampant and recession worries looming,” said Ted Rossman, a Bankrate analyst.
Since the beginning of the year, Americans’ spending kept rising even as gas prices rose and consumer sentiment nosedived. The drop in May suggests they are less likely to shrug off higher prices in the future.
But Rossman added that part of the drop in May is due to how much consumers have already stocked up on their big ticket items. Spending has now shifted more towards services, rather than goods.
Spending on restaurants is up
There was still an increase in spending on discretionary items like sporting goods, hobbies, musical instruments, and books. Restaurants and grocery stores also saw an increase in spending.
“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,” Rossman said.
The largest increase in consumer spending was on gas, which increased 4% from April to May, largely because of rising gas prices. Retail sales are not adjusted for inflation.