May was a fairly normalized month for retail sales, at least at headline level. Total spending grew by 3.1 per cent, which is a respectable, average rate of growth.
Inflation continues to flatter these numbers slightly, with underlying volume growth coming in at a less robust 1.5 per cent. From our data, while there have been small pockets of accelerating prices, within most core categories, we did not see a surge in tariff-related price hikes during May. That may well change as the course of the year progresses and as inventory affected by tariffs starts to appear on shelves.
Core retail sales – which exclude gasoline, autos, and foodservice – increased by a solid 3.9 per cent. Inflation was more moderate here, so underlying volumes are quite good. However, we continue to see some pull-forward spending because of tariffs. This was not as great as last month, but we estimate around $1.86 billion of spending was pull-forward. This accounted for 0.4 percentage points of growth in core retail sales; so, even without this benefit, core retail sales were comfortably positive.
All in all, the numbers demonstrate the underlying resilience of the consumer even in the face of economic uncertainty. The truth is that during May, consumer finances did not deteriorate significantly, and there was some relief from lower gas prices. So, the ability to spend remained largely intact. The willingness to spend also improved modestly as consumer confidence rebounded after some sharp falls. This partly reflects people getting over the initial shock of tariff announcements. However, in our view, confidence remains fragile and is subject to sudden change – especially if the economy deteriorates and if tariffs start to have more of an impact on prices. This clouds the balance of the year in a degree of uncertainty.
On a sector basis, furniture and home stores led the way with an 8.8 per cent increase in sales. This is where a lot of pull-forward spending happened, and without this dynamic, we estimate that sales would only have risen by 3.2 per cent. This does not necessarily bode well for the back half of the year, where, unless the housing market picks up dramatically, we will probably see some softer growth coming through in this big-ticket category.
The positivity from home furnishings did not spill over into home improvement (where sales declined by 3 per cent) or electronics (where sales dipped by 1.2 per cent). Within electronics, appliances did somewhat better, but consumer electronics and personal gadgets continue to perform badly as they are largely discretionary, and there isn’t enough product innovation to drive sales. That said, June sales might be better thanks to the launch of the Nintendo Switch 2. At home improvement retailers, a continued downtick in big remodeling spending continues to impact sales.
At apparel retailers, sales increased by a robust 5.8 per cent. This builds on the very strong performance in the prior month and reflects the arrival of better weather, which continues to nudge consumers into refreshing their closets. Pull-forward spending in anticipation of tariffs is a little less impactful in clothing, but it is still present, and without this, we estimate sales would have risen by 4.4 per cent. There is also some sharp polarization in apparel with a divergence in performance among players: Those with propositions that don’t add value or have distinct and interesting styles continue to lose out.
Food retailers posted a 2.5 per cent sales increase, with some of this driven by inflation. Pull-forward spending is minuscule in grocery. Mother’s Day was helpful to the sector, with quite a few consumers opting for meals at home. The start of grilling season around Memorial Day also had good traction this year, with many retailers offering sharp prices and deals to drive sales.
Overall, retail is approaching the end of the first half in a reasonably good place. However, there are a lot of challenges stacked up in the second half of the year.
