May Retail Sales Underscore Widening Inequalities

Retail sales jumped by 17.7% in May from April, the largest monthly increase going back to 1953 when the series began. Sales were still 6.1% below May of 2019 numbers. April data was revised slightly higher, but still a record drop for the month. May sales came off a very steep fall, so the double-digit gain is welcome, but we cannot get caught up in one number. Sales were $42 billion lower than February, pre-COVID-19 shutdowns.

The strongest gains showed up in apparel sales, which nearly tripled for the month. Deep price cuts and a sharp contraction in April contributed to those gains. Apparel sales fell more than 60% from a year ago in May. Anecdotal reports suggest that tops and exercise wear are selling better than other clothing because those who can work from home are doing so via video conferencing and working out more while at home; running shoes were in short supply.

Next up: sales gains in furniture and sporting goods stores, which reported the strongest monthly gains in history, though they were still off sharply compared to a year ago. The extension of work-from-home has created a boomlet in remodeling and the creation of home gyms. Spending at building materials stores jumped in both April and May, as those who could use their time at home to make repairs and garden did so.

The housing market has been surprisingly strong in many regions, even during the lockdowns, as pent-up demand from would-be buyers accelerated with falling mortgage rates. The inventory of homes to buy is still running significantly short of demand. Thank you, Federal Reserve Chair Jay Powell. The housing market has been one of the biggest beneficiaries of the Fed’s aggressive actions; credit conditions for mortgage refinancing have tightened a bit.

Vehicle sales bounced off April lows, with gains concentrated in more expensive SUVs and pickup trucks - yes, pickup trucks. The vehicle manufacturers say pickup trucks with extra large cabins have become a lifestyle choice for some high-end buyers. They get better mileage than in the past; low prices at the gas pump help.

Separately, there has been a shift to upgrade vehicles by commuters in other parts of the world as their economies reopened. Those who can afford to avoid mass transit are doing so in style. We first saw this with a sharp rebound in luxury car sales in China. The question is whether those gains can be sustained. The second shoe to drop on layoffs will be higher paid white-collar jobs. Firms that expected COVID-19 to be temporary are now realizing a more lasting effect on the pipeline for business. Used vehicle sales got a slight lift from stimulus checks, another trend that could be transitory.

Sales at food service and drinking places surged 29%; high-frequency data from OpenTable showed reservations growing (about 30-40% of pre-crisis levels) in the eight states that currently accept reservations. Grocery store sales edged higher in May, but not to the level of panic-buying we saw in March. The opening of some restaurants and bars looks premature, given the spike in COVID-19 hospitalizations that followed a jump in travel and tourism over the Memorial Day weekend. The new Census Bureau Small Business Pulse Survey revealed revenues in accommodation and food services industries jumped compared to the last week of May.

Online shopping remains on a tear, breaking previous records with sales up 9% in May alone and 31% from a year ago. Williams and Sonoma reported sharp gains as affluent buyers moved even more online during lockdowns.

There was an unexpected 37% monthly surge in department store sales, but that was overshadowed by a flurry of bankruptcies and store closures. Discounts on clothing were deep in May. Neiman Marcus and JCPenney were the first ones to declare bankruptcy; Macy’s announced even more store closings. Spending at the big-box discounters was more tepid during the month, as many low-wage workers waited for their unemployment benefits from late March and early April to clear. Gig workers and the self-employed had to wait a particularly long time for benefits; when they did arrive, most went to necessities such as food and rent.

Bottom Line

It is too early to celebrate. Stimulus checks, along with enhanced unemployment benefits, helped many to weather the shutdowns, but food lines lengthened as only about half of renters were confident they could pay rent in May. High-end consumers were much more confident as their stock portfolios rallied. They also may be feeling a false sense of security in their jobs. The airline and many professional service firms waited until June to cut higher level jobs.

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