Rising consumer confidence brought an increase in spending in May as shoppers prepare for summer
By Jonathan Silver, CEO of Affinity Solutions
While April’s retail picture was cloudy, a brighter outlook emerged in May as consumer confidence rebounded after three straight months of declines.
According to the May 2024 CNBC/NRF Retail Monitor, powered by Affinity Solutions, seasonally adjusted total retail spending increased 3.03% year-over-year (YoY) and core retail spending increased 2.88% unadjusted YoY, marking the largest monthly changes seen since April 2023.
The spending increases in May suggest that consumers remain optimistic. Despite high prices, factors such as positive job growth, rising wages, and healthy bank balances have bolstered consumer confidence, encouraging spending.
As we enter the summer season—a prime travel time for younger generations— it’s important to monitor gas and airline prices and their impact on consumer spending. For instance, the AAA found that on May 31st, the national average for a gallon of gas was $4.62 — 45 cents more than a month ago, and $1.58 more than a year ago. We expect domestic gas demand to climb as drivers fuel up for the summer travel season, which began over Memorial Day weekend.
Despite the price of gas increasing in May, we observed a 0.43% decrease in spending month-over-month (MoM). This decrease could be attributed to many U.S. school districts holding their Spring Breaks in April this year. However, spending on gas in May rose by 0.79%.
Looking at the category level:
Spring Projects Taper Off In Warmer Weather
After a brief uptick in April, durable goods, which include Furniture, Electronics, Appliances, and Building Supplies, went back into their period of fairly steady declines. Furniture and Home Furnishings were down 0.14% MoM and 3.21% YoY, while Electronics saw a MoM decline of 0.05% and a YoY decline of 0.87%. This was unexpected as Memorial Day sales are typically a popular time for consumers looking to upgrade their homes for the summer months. The best explanation is that consumers are holding back on bigger purchases amid fears of inflation. The University of Michigan Survey of Consumer Sentiment Index for May posted an initial reading of 67.4 for the month, down from 77.2 in April and well off the Dow Jones consensus call for 76.
After a strong performance in April, spending in the Building and Garden Supplies sector dropped by 0.60% MoM and 0.53% YoY in May. This decrease could be attributed to the earlier warming this spring, and the possibility that gardeners stocked up on flowers and supplies in April to plant in May, meaning they’re spending less to maintain their gardens now and likely throughout the year.
Themed Events Carry Online Retail
Non-store retail outlets, including giants like Amazon, continued to dominate consumer spending, registering a 17.91% YoY growth and a 2.09% growth MoM. May was particularly busy for Amazon, with the retailer hosting two sales events: Pet Day and Summer Beauty Haul. Pet Day was a success for the e-commerce giant, with sales increasing by 1.2% among Millennials, 3.8% among Gen X, and 6.7% among Boomers. Additionally, sales rose by 6.2% among low-income earners, 2.8% among middle-income earners, and 5.7% among high-income earners.
It’s clear that Amazon’s approach to creating specific sales events tailored to diverse customer segments, not only boosts sales but also deepens customer loyalty.
Summer Sales
The clothing category marked its 14th consecutive month of growth with a 6.24% increase YoY and a 1.44% rise MoM. With May signaling the unofficial start to summer, spring apparel has started to hit clearance racks. Retailers must make way for new summer items, and that means consumers can score deep discounts on spring merchandise. Notably, several major retailers held Memorial Day sales, including Abercrombie & Fitch’s 20% off sitewide sale, Bloomingdale’s discounts of 30-65% on handbags, shoes, swimwear, sundresses, and leftover spring styles, and Nordstroms’ Clear the Rack Sale.
The American job market showed robust growth in May, adding a strong 272,000 jobs, indicating a positive economic outlook. It’s still growing steadily, propelling consumer spending on travel, non-store retailers, and wellness. A healthy job market typically drives consumer spending, as reflected in this month’s numbers. We anticipate this trend will continue into next month as well.
