Retail sales drop in May

KPMG Senior Economist Ken Kim offers three key takeaways.

Kenneth Kim

Kenneth Kim

Senior Economist, KPMG US

+1 212-954-6144

Video transcript

Retail Sales declined by 1.3% in May, coming in slightly below market Expectations. Despite the weaker headline print, a number of categories experienced increases, particularly those associated with return to the office and going out. For example, sales at restaurants and bars, closing store sales, and sales at health and personal care stores were all up in May. So, what are the three key takeaways: First, over the coming months we expect to see a transition away from goods consumption towards services consumption as consumers, while vaccinated consumers re-engage with the economy via travel and going out. Second, the shift away from goods consumption should help ease price pressures for goods that the economy has been experiencing as of late. Third, retail sales account for about 15% of GDP while services consumption accounts for about 50% of GDP. As this shift occurs we see a more durable economic recovery in the quarters ahead.


May 2021 Retail sales:

Retail Sales dropped in May:

After two months of strong gains, retail sales declined by -1.3% m/m between April and May. This decline was larger than market expectations of -0.8%. Despite the weaker headline print, a number of categories posted gains in May, particularly in those categories associated with face to face activities such as return to the office and in general, going out. Sales at restaurants and bars rose by 1.8% m/m in May, clothing store sales increased by 3%, and health and personal care stores rose by 1.8%. One category that did not fare as well in May was motor vehicle sales, which fell by 3.7% m/m and most likely due to the semiconductor chip shortage which reduced the available supply of vehicles. Sales at building materials, garden equipment and supply dealers declined by 5.9% m/m in May as people slowly transition back to the office from their work from home environment.

What does this mean for retail as the economy continues to reopen?

It’s important to point out that retail sales make up only 15% of the GDP, whereas services consumption is over 50% of GDP. Over the coming months, we expect to see spending trends continue to shift towards services consumption as more vaccinated consumers continue to re-engage with the economy via travel and social activities. This points to a more durable economic recovery in the quarters ahead given the larger weight of the services economy as a share of GDP.

So what’s the upside?

The May retail sales data provides evidence of the transition from goods to services – which may help to ease price pressures for goods as people shift from buying cars and furniture to socializing and travel. We expect retail sales, and more broadly consumer spending, to continue to fuel a strong rebound in economic activity this year.