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Retail Sales Take a Dip in May: Here's What Else You Should Know

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The Commerce Department stated that U.S. retail and food services sales in May fell 1.3% to $620.2 billion following a revised reading of 0.9% jump in April. The decline was steeper than expected with spending on categories such as automobiles, home furnishing, electronic stores and building supplies taking a hit. However, demand for apparel as well as health and beauty products remained strong.

Industry experts pointed that as the economy reopens consumers cut back spending on big-ticket items and goods and spent more on services and activities that were earlier restricted. With large number of Americans being inoculated and resuming active social lifestyle, demand for travel, leisure and entertainment as well as dining out has risen. We note that restaurants and bars is the only service category included in the retail sales data.

In spite of month-on-month decline in U.S. retail sales, market pundits believe that the trend still remains strong. We note that retail sales surged 28.1% from May last year. Impressively, sales at clothing & clothing accessories stores as well as food services & drinking places soared 200.3% and 70.6% year over year, respectively. Americans look way more confident now, thanks to stepped-up vaccinations. There is growing eagerness among consumers to venture out and shop at stores. As a result, online retail sales dipped 0.8% sequentially in the month of May.

Let's take a look at category-wise sales on a month-over-month basis.

U.S. Census BureauImage Source: U.S. Census Bureau

What Else Should You Know?

A gradual pick-up in economic activities with more people returning to their workplace along with record savings, higher vaccination rates and waning Covid-19 case are boosting consumer sentiment. Remarkably, the economy added 559,000 jobs last month, while the unemployment rate dropped to 5.8% from 6.1%. Easing restrictions with consumers becoming increasingly comfortable going out and shop should drive retail sales.

Retailers, particularly apparel, are expecting to make the most of the recovery in demand, making up for the sales lost last year due to the pandemic. Additionally, department stores, discount stores and online retailers are likely to capitalize on the upbeat shopping spirit of consumers.

Considering the favorable consumer environment and recovery in the economy, the National Retail Federation envisions U.S. retail sales to increase between 10.5% and 13.5% to an estimated $4.44 trillion to $4.56 trillion in the current year. Also, a look at the data released by Mastercard SpendingPulse suggest a stellar back-to-school season for retailers, as more children head back to the classroom. Sales during the back-to-school period — Jul 15 through Sep 6 — are anticipated to increase 5.5% from the last year and 6.7% from 2019.

With retailers such as Target Corporation (TGT - Free Report) , Ulta Beauty, Inc. (ULTA - Free Report) , Tapestry, Inc. (TPR - Free Report) , Abercrombie & Fitch Co. (ANF - Free Report) and Walmart Inc. (WMT - Free Report) directing resources toward advancing omni-channel capabilities, enhancing supply chain and providing faster delivery options, they look well-poised to tap any rise in demand.

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