U.S. retail sales for May came in slightly below expectations, with a modest 0.1% increase in overall sales compared to the previous month. Excluding automobile purchases, sales actually declined by 0.1%. However, when food services are excluded, retail sales showed a more positive picture, growing by 0.2% month-on-month and 2% year-on-year.
Despite a slight decline in retail sales after adjusting for April’s revised figures, the overall picture remains stable. Retail sales have fluctuated within a narrow range of ±0.2% for the past two months, indicating no significant upswings or downturns.
Specific categories show mixed results. Furniture and home goods experienced a significant decline in both year-on-year and month-on-month sales, reflecting a downturn in consumer spending in this sector. This decline is likely linked to rising interest rates, which have a negative impact on the real estate industry, a key driver for these purchases. Building materials and gardening tools, also closely linked to the real estate sector, experienced a decrease in sales.
Electronics and appliances showed positive growth, both month-on-month and year-on-year. Clothing also demonstrated positive growth in both metrics. Department stores maintained relatively stable sales figures, while online shopping continued its upward trend.
Looking at the inventory-to-sales ratio for April, overall, it remains relatively low compared to the same period in 2019. While the April 2018 and 2019 ratios were close to 1.44 and 1.45, respectively, considered “normal” before the pandemic, this year’s April ratio sits at 1.3, significantly lower.
Specific categories show varying inventory levels. Automotive and auto parts are significantly lower than pre-pandemic levels. Furniture, home goods, and appliances have already surpassed pre-pandemic levels. Building materials and gardening tools are in a similar situation. Clothing remained relatively stable. Department stores are slightly below pre-pandemic levels.
Despite the recent slowdown in retail sales, overall consumption remains steady. The U.S. retail sector is neither experiencing a major decline nor a significant upswing, instead, it is fluctuating within a narrow range.
The current situation leads to some predictions about future freight rates. There is no significant demand-side pull; we are seeing normal restocking following a period of “de-stocking.” The intensity and duration of restocking will depend on importers’ outlook on the U.S. economy. Early shipments are a precautionary measure. Importers are opting for early shipments to mitigate the effects of supply chain disruptions and instability. Global shipping capacity remains tight. While shipping companies have increased ship numbers and capacity on certain routes, the actual increase in capacity is limited due to detours and port congestion.
The combination of normal restocking and early shipments, coupled with tight supply and high demand, may support high freight rates until a new balance between supply and demand is reached.
It is unclear whether early shipments will signal an early end to the peak season. The shipping pace has been unpredictable in recent years, making it difficult to predict the duration of the peak season.
The recent price increases in freight rates are largely tactical moves aimed at maximizing profits in the current market. However, if prices exceed what customers can bear, leading to reduced shipments and underutilized ships, prices will eventually start to decline.
July is the crucial period for determining whether U.S. West Coast freight rates can hold above $10,000. The continued presence of large FOB customers with low-priced slots and the pressure to fill ships could potentially prevent a rapid decline in FAK prices.