US retail sales for May significantly surpassed market expectations, demonstrating unexpected resilience in consumer spending. Despite consumer confidence hitting a record low and persistently high oil prices, the overall year-on-year sales growth rate climbed to its highest level in nearly three and a half years.
The US Census Bureau released data on Wednesday showing that retail sales rose by 0.9% month-on-month in May, far exceeding the market forecast of 0.6%. The April increase was also revised upward to 0.4%. The year-on-year growth rate reached 6.9%, marking the strongest performance since January 2023.
Gas station revenues surged by 3.4% month-on-month, serving as the primary driver behind the overall data strength. This directly reflects the impact of soaring oil prices during the Iran conflict. Excluding gas stations, sales still recorded a solid 0.7% monthly increase.
Following the data release, statements from major retailers like Target and Walmart corroborated the figures. Both companies indicated that consumer purchasing intent remains stronger than anticipated despite years of persistent inflation. This data also aligns with credit card spending tracking data from institutions including Bank of America (BAC), JPMorgan Chase, and PNC Financial Services Group, all of which recorded substantial support for consumer spending from tax refunds and stock market gains.
However, significant concerns lurk behind the robust data. Declining real wages and a falling savings rate suggest consumers have diminishing room to sustain the current pace of spending. Low-income households are under particular pressure from the oil price shock, and the "K-shaped" divergence in consumption patterns continues to intensify.
Broad-Based Growth with Vehicles Leading Rebound
The May retail data showed widespread growth, with 11 out of 13 merchandise categories recording positive gains. Motor vehicle and parts sales rebounded by 1.2% month-on-month, the largest single-month increase in nearly a year. Gas stations and non-store retailers (including e-commerce) also saw leading gains. In contrast, electronics and food services sales contracted slightly.
Restaurant and bar spending fell by 0.1% month-on-month, reversing the strong growth seen in April. This category is the only service sector component covered in the retail monthly report.
Analysts at Bank of America had anticipated a significant upside surprise prior to the data release. The bank noted that gasoline prices, as reported in the CPI, surged by a seasonally adjusted 7.0% month-on-month in May, directly boosting gas station retail revenue and serving as a key driver for this month's data. It is important to note that all the retail data mentioned are nominal values, not adjusted for inflation.
Control Group Sales Strongly Beat Forecasts, Supporting GDP
The closely watched "control group" sales data—a retail subset used directly in calculating Gross Domestic Product (GDP)—rose by 0.7% month-on-month in May, significantly above the market expectation of 0.4%. This measure excludes food services, auto dealers, building material stores, and gas stations, and is considered a purer gauge of underlying consumer spending momentum.
Core retail data also showed strong performance. Retail sales excluding autos increased by 0.8% month-on-month, beating the 0.6% forecast. Sales excluding both autos and gas stations rose by 0.5% month-on-month, also better than the 0.3% expectation.
Using the CPI for a rough deflation adjustment, real retail sales are showing a sustained recovery from the negative growth territory seen last December, with a preliminary trend of substantive improvement in consumption emerging.
Low-Income Groups Under Pressure, Consumption Divergence a Key Variable
Despite the impressive overall retail figures, cracks in the consumption structure are widening. Data from Bank of America shows that the May oil price surge led to a lower share of wallet for discretionary spending across all income groups compared to the same period in 2025, a clear deviation from the recent trend of this share steadily increasing.
Low-income households are more significantly impacted by the oil price shock—the rise in their share of necessary spending is greater than for middle- and high-income groups, further widening the "K-shaped" gap in discretionary spending power between income tiers. Credit card data also indicates that spending by affluent consumers is growing notably faster than that of middle- and low-income groups, with the latter simultaneously facing the dual pressures of tightening budgets and relatively high borrowing costs.
As oil prices have recently begun to retreat, whether this structural divergence can gradually narrow will be a key indicator for assessing the future resilience of US consumption.
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