US retail spending rises 1.3% in May as consumers turn selective

US consumers increased spending 1.3% in May from a year earlier but bought fewer items, a divergence that shows growing price sensitivity after months of elevated inflation and fuel costs.

US retail spending rose 1.3% in May from a year earlier, Circana data show, while unit volumes fell 1.5% — the widest gap in three months — as consumers grew more selective about purchases.

"Consumers may be calloused to higher prices, but they're not numb — they remain highly engaged and intentional in how they spend," said Marshal Cohen, chief retail industry advisor at Circana.

The dollar index edged up to 99.64 after the data release, while the 10-year Treasury yield held at 4.440%. Gold traded at $4,327.37 an ounce and Nasdaq 100 futures maintained a 0.6% gain. Food and beverage sales rose 2.2% with unit demand essentially flat, while discretionary general merchandise posted a 1.2% revenue gain alongside a 4.3% unit sales drop. Private label brands now account for 49% of apparel sales revenue, Circana said, a sign of value-driven trade-down behavior.

The spending pattern complicates the Federal Reserve's policy calculus: services inflation remains sticky while goods demand softens. April's retail spending had declined 1.6% year over year with a 4.7% unit drop, making May's rebound modest by comparison. Markets now look to the Fed's next meeting for clues on whether consumer resilience can withstand the current rate environment.

The May data marks an improvement from April, when overall retail spending fell 1.6% year over year and unit demand dropped 4.7%, according to Circana. Non-edible consumer packaged goods posted a 2.3% increase in dollar sales while unit demand fell 2.1%, extending a trend of consumers paying more for less.

Categories tied to lifestyle and enjoyment bucked the broader pullback. Entertainment-driven segments such as video games and toys recorded notable gains, while beauty products remained a steady driver of discretionary spending. Practical purchases — including automotive products, technology and small appliances — reflected an ongoing prioritization of essential needs, Circana said.

Value Migration Reshapes Retail

The shift toward private labels marks one of the most pronounced changes in consumer behavior this year. With store brands now capturing nearly half of apparel sales revenue, national brands face mounting pressure to justify premium pricing. Cohen said success in the current environment depends on retailers' ability to "transform purchase moments into compelling, destination-driven experiences that balance both enjoyment and value."

Gas prices, while easing slightly from earlier peaks, remain elevated enough to influence spending patterns. The Memorial Day week delivered modest year-over-year growth, Circana said, suggesting consumers have adjusted to higher fuel costs but remain constrained in discretionary categories.

Cross-Asset Implications

The dollar's modest uptick to 99.64 reflected a neutral-to-slightly-positive read on the data, with traders parsing the mixed signals from top-line growth and underlying volume weakness. The 10-year yield at 4.440% suggested bond markets saw little reason to adjust rate expectations, while gold's hold above $4,300 an ounce pointed to lingering demand for hedges against inflation uncertainty.

The last time unit demand contracted this sharply while dollar sales rose — in the second quarter of 2024 — the Fed held rates steady for seven consecutive meetings before delivering a quarter-point cut in September. If the current divergence persists, markets may begin pricing a similar timeline for policy easing.

This article is for informational purposes only and does not constitute investment advice.