Retail sales fell last month. But stores are still expecting a strong year

US retail sales fell 1.3% in May as the sector continues to come down from the stimulus-fueled high of recent months.

The last round of stimulus checks from the American Rescue Plan approved by Congress in March boosted consumer spending in the early spring months. But the sugar rush has worn off.

Sales numbers for April, which were initially reported as flat, were revised up to 0.9% growth.

The culprit dragging the May sales down was autos, with car sales declining 3.7%, the Census Bureau reported Tuesday. Stripping them out entirely, retail sales fell by 0.7% last month.

The data are tracking vehicle sales data, which showed a 16-year high at 18.8 million cars sold in April, but a slowdown in May, according Action Economics’ market economist Benjamin Engen citing data from the National Automobile Dealers Association.

May retail sales were still 28% higher than they were last year when many non-essential stores were closed.

Strong year ahead

Clothing stores were a bright spot last month. Sales at clothing stores increased 3% in May from the month prior.

Areas that have surged in the pandemic such as electronics and sporting goods’ stores declined last month. Sales at electronics stores dipped 3.4% while sporting goods’ store sales dropped 0.8%. Sales at online stores also dropped 0.8% in May.

Still, America’s retail industry is expecting a strong year thanks to more consumers getting vaccinated and returning to stores, as well as fiscal stimulus boosting consumer spending in the first half of 2021.

The National Retail Federation, an industry group, expects retail sales to grow between 10.5% and 13.5% to more than $4.44 trillion this year, nearly double a previous forecast it gave in February.

“The economy and consumer spending have proven to be much more resilient than initially forecasted,” NRF CEO Matthew Shay said last week.

Non-store sales — the bulk of which come from online — are expected to grow between 18% and 23% this year, NRF projects.

“My optimism is higher than it was at the beginning of the year… Our customers want to get out and shop,” Walmart CEO Doug McMillon said last month.

Retailers that struggled in 2020, such as clothing chains and department stores, have said consumers are shopping again for apparel, luggage and other categories they saw little need for while they sheltered at home.

“As the weather warms up and vaccines are more readily available, customers are feeling increasingly confident to get dressed up and venture outside. They’re also starting to attend events again,” said Macy’s CEO Jeffrey Gennette last month.

Retailers still face big challenges, however.

Transportation, labor and manufacturing costs are increasing. Retailers have said inventory is difficult to keep in stock for high-demand items such as furniture, sporting goods and electronics. Rising inflation also threatens to curtail consumer spending if prices get too high.

Some businesses are also struggling to hire. There were 965,000 open jobs in the retail sector in April, according to the latest Labor Department figures, more than double the figure from last April. And 106,000 retail workers quit their positions in April.