May's Retail Sales Depressed Q2's Real GDP

Jun 16, 2022 2 min read
May's Retail Sales Depressed Q2's Real GDP

May's retail sales was weak in current dollars (-0.3% m/m) and even weaker in real dollars (-1.6%). The question is whether consumers have more than satisfied their post-lockdown, pent-up demand for goods, and are now spending more on services? Consider the following:

(1) The three rounds of stimulus checks provided by Uncle Sam (actually Uncles Don and Joe) during the pandemic certainly stimulated retail sales. Indeed, they caused a demand shock which overwhelmed the supply of goods. That triggered a remarkable jump in inflation, led by rapidly rising consumer durable goods prices.

(2) Consumer spending on services was held back by the pandemic, but has been making a big comeback in recent months. Indeed, retail sales includes an item for food services and drinking places, which is up 17.5% y/y through May.

(3) Excluding food services and retail sales of building material (which is included in residential investment in the GDP accounts) shows that retail sales (on a comparable basis to personal consumption expenditures in GDP) fell during May by 0.4% m/m and by 1.7% on an inflation-adjusted basis.

This contributed to the downward revision in Q2's real GDP growth from 0.9% (saar) to 0.0%, according to the Atlanta Fed's GDPNow tracking model as of June 15. Real consumer spending is still up by 2.6% (but revised down from 3.7%). Residential investment is now -8.5% (revised down from -8.0%).

(4) The Fed has just started tightening as economic growth has slowed appreciably. Today's FOMC projections show that the committee now expects real GDP to grow only 1.7% this year, down from their March projection of 2.8%. They also revised their headline PCED inflation rate up from 4.3% to 5.2%.


Great! Next, complete checkout for full access to Yardeni QuickTakes.
Welcome back! You've successfully signed in.
You've successfully subscribed to Yardeni QuickTakes.
Success! Your account is fully activated, you now have access to all content.
Success! Your billing info has been updated.
Your billing was not updated.