May retail sales fell 1.3% as Americans spend less on goods

NEW YORK (AP) — Retail sales fell in May, dragged down by a decline in auto sales and a shift by Americans to spend more on vacations and other services instead of goods.

Total sales dropped a seasonally adjusted 1.3% in May from the month before, the U.S. Commerce Department said Tuesday. Wall Street analysts expected a smaller decline of 0.5%.

Economists predicted retail sales to drop in May because of the lack of cars available for sale due to a worldwide shortage of chips, which are needed to power in-car screens and other features. Sales at auto dealerships fell 3.7% last month, the government said.

Another reason for the decrease: As more Americans are vaccinated and want to head out more, they are spending more of their money on haircuts, trips and other services that are not included in Tuesday's report. Last month, sales fell at furniture, electronics and home building stores.

“Consumer spending growth through the rest of the year will shift to services from goods,” wrote PNC chief economist Gus Faucher in a research note.

That switch will also likely help reduce the supply shortages that have plagued some parts of the economy and pushed up inflation. There are signs this is already happening: With car prices rising, auto sales have slowed. Vehicle sales soared in the pandemic, which means fewer people need new cars. And according to a separate government report Tuesday, automakers ramped up production in May, after it fell in two of the previous three months.

Home builders have also cut back on the construction of new homes in response to sharply higher lumber costs. Now, lumber prices are declining as sawmills lift production.

“We’re seeing some of the sectors where we had the greatest supply-demand imbalance seeing some resolution of that imbalance,” said...