High interest rates impact consumer spending

By Glenn Dyer | More Articles by Glenn Dyer

Like in Australia, high interest rates are slowly strangling consumer spending, with May’s retail sales being the latest example.

Data released on Tuesday showed that retail sales were weaker than expected in May, but slightly stronger than the very weak April performance.

When car sales are stripped out, the growth vanished.

The US Commerce Department reported that sales rose just 0.1% for the month, one-tenth of a percentage point below market forecasts but slightly better than the downwardly revised 0.2% (originally reported as flat). On a year-over-year basis, sales rose 2.3%, down from the 3% rate in the year to April.

When car sales were excluded, sales decreased by 0.1% against a forecast for a 0.2% increase.

Retail sales excluding automobiles, petrol, building materials, and food services rose 0.4% last month after a downwardly revised 0.5% drop in April.

These so-called core retail sales were previously reported to have dropped 0.3% in April. Core retail sales correspond most closely with the consumer spending component of GDP, so they are an indicator of the strength of consumer activity across retailing concerning growth data.

Economists believe the weakness in April and the upward swing in May will probably balance each other out, pointing to moderate growth in consumption in the current second quarter.

However, the real story is that sales were probably a bit stronger than the data showed because easing petrol prices helped soften the blow, with the value of sales at service stations and other outlets down 2.2%.

Sales of sporting goods, and at music and book stores were strong, with a rise of 2.8% (all discretionary purchases).

Online outlets reported a 0.8% increase, while bars and restaurants saw a 0.4% decline. Furniture and home furnishing stores also reported a 1.1% drop, with the latter two being driven by weakening discretionary spending and examples of the growing strain consumers are under.

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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