Retail sales in the U.S. showed underwhelming growth in May, up 0.1% over the previous month at $703.1 billion, according to data released Tuesday by the federal Department of Commerce. 

Nationwide Financial Markets Economist Oren Klachkin attributed weak sales to lower gasoline prices but says details in the report “paint a more encouraging picture than the headline data.”

“Overall, we see this report as another step toward normalization,” Klachkin said Tuesday in an analysis of the Commerce report. “Ebullient post-pandemic retail sales lasted for longer than many expected, and that streak now looks to be finished. We are returning to a normal economic environment.”

The retail sales report shows the 0.1% growth in May comes after a slight 0.2% sales decline to $702.5 billion in April, revised from the Commerce Department’s initial report showing the April numbers as unchanged. 

Core retail sales in May, which excludes autos, gasoline, building materials and food services, climbed 0.4%.

The report shows total sales for the March through May 2024 period were up 2.9% from the same period in 2023.

According to Klachkin, moderating employment and wage gains won’t boost incomes and “offer a robust offset to high prices and interest rates as they once did.” 

He said the economic environment, combined with less willingness by consumers to use credit and buy now, pay later services will cause consumer spending to moderate.

“In some ways, these data are welcome since cooler retail sales are necessary to slow inflation,” Klachkin said. “Last week’s inflation prints offered the Fed (U.S. Federal Reserve) some assurances, but policymakers need a streak of softer prints to decisively pivot away from their current stance and lower rate cuts. We think they’ll have enough confidence to start easing by September, but they will likely lower rates slowly and cautiously.”

The latest inflation report released last week showed price increases slowed in May. The consumer price index for the month was up 3.3% from the year prior, lower than the 3.4% economists had forecast, according to a report from the New York Times. 

The Nationwide economist said real consumer spending for the second quarter of 2024 “remains on a solid track.” 

Klachkin expects Q2 consumer spending to be around 2% annualized and the U.S. Gross Domestic Product to grow at roughly 2.5%.

The Commerce Department will release the next report on July 16.