US retail sales beat expectations in May

• Core retail sales (excluding autos, gas, building materials, and food services) increased 0.7% in May, above April's 0.5% gain, closely tracking consumer spending in GDP calculations
• Lower-income households have spent down over 60% of their 2026 tax refunds versus 43% at the same point last year, with higher gas prices accounting for much of the difference
• The saving rate fell to a four-year low in April as consumers relied on tax refunds and stock market gains to maintain spending, suggesting sustainability concerns ahead

Summary: US Retail Sales Beat Expectations in May

Key Figures:

U.S. retail sales rose 0.9% in May, surpassing economist expectations of 0.5% growth. April's figures were revised downward from 0.5% to 0.4%. Core retail sales (excluding automobiles, gasoline, building materials, and food services) increased 0.7% in May following a 0.5% gain in April.

Market Drivers:

The sales increase was partially driven by elevated gasoline prices, which reached four-year highs due to the U.S.-Israeli conflict with Iran. Gas prices have since fallen below $4 per gallon following a ceasefire agreement that reopened the Strait of Hormuz. Tax refunds and a stock market rally also supported consumer spending, though this came at the cost of savings, with the saving rate dropping to a four-year low in April.

Economic Context:

Consumer spending accounts for over two-thirds of the U.S. economy and grew at a 1.4% annualized rate in Q1, while overall GDP expanded 1.6%. The Atlanta Fed projects Q2 GDP growth at 2.8%.

Spending Sustainability Concerns:

PNC Financial analysis reveals households are depleting tax refunds faster than previous years, with lower-income households spending over 60% of refunds compared to 43% last year. As the tax filing season ends, this spending cushion is diminishing.

Monetary Policy Implications:

The data is unlikely to impact Federal Reserve policy. The Fed is expected to maintain interest rates in the 3.50%-3.75% range, with economists ruling out rate hikes this year despite increased inflationary pressures, citing easing oil prices as a mitigating factor.