Retail Sales Fell in May, Helped by Drop in Gas Prices

by: Mark J. Perry
Gas prices fall in May by 8%
Retail gas prices fell in May by almost 8% (see top chart above, data here), leading to a -3.3% decline in consumer spending at gasoline stations in May. The 8% decline in May gas prices from $2.94 to $2.71 per gallon was the largest monthly decline since a -20% drop in December 2008. The 8% drop in gas prices and corresponding savings at the pump for consumers was part of the reason for the -1.6% decline in retail sales in May, compared to April, based on data in today's release from the Commerce Department.

On an annual basis, consumer spending was up by 6.9% in May on an annual basis, marking the seventh straight month of positive annual increases starting in November of last year, following 14 straight months of year-to-year declines from September 2008 to October 2009 (see middle chart above). As both the middle chart (annual percent change in sales) and bottom chart (retail sales in dollars) indicate, there is a lot of "noise" or monthly variations in retail sales, so the -1.6% drop in May should be considered with that in mind, especially given the largest monthly decrease in gas prices in 17 months.

But here's how it's getting reported by AP: "Retail sales plunged in May by the largest amount in eight months as consumers slashed spending on everything from cars to clothing. The big drop raises new worries about the durability [and strength] of the economic recovery."

The AP report does briefly mention gas prices: "Gasoline stations sales were down 3.3 percent, a drop that reflected in part lower gasoline pump prices during the month." But they fail to mention that it was the largest monthly decline in gas prices since 2008, and that lower gas prices and lower spending at gas stations is a POSITIVE factor for consumers, not NEGATIVE.

Finally, auto sales increased by 3.74% in May according to the BEA (data here), at least in terms of unit sales, so it's interesting that the Census retail sales report is showing a -1.7% decline in May spending on motor vehicles (of course, it could be higher unit sales for lower priced cars?).