WASHINGTON: US retail sales dropped more than expected in May, with spending rotating back to services from goods as vaccinations allow Americans to travel and engage in other activities that had been restricted by the Covid-19 pandemic.

Despite last month's decline reported by the Commerce Department on Tuesday, the trend in retail sales remains strong. Sales in April were revised sharply up and are well above their pre-pandemic level, keeping intact expectations of double-digit growth in both consumer spending and the economy this quarter.

Retail sales fell 1.3% last month. Data for April was revised higher to show sales increasing 0.9% instead of being unchanged as previously reported. Economists polled by Reuters had forecast retail sales declining 0.8%.

Retail sales surged 28.1% on a year-on-year basis. The retail sales report mostly capture spending on goods, with restaurants and bars the only services category included.

May's decline in retail sales was also due to a drop in receipts at auto dealerships, reflecting tight supply as a global semiconductor shortage hampers motor vehicle production.

Receipts at auto dealerships fell 3.7%. Shortages also likely hurt sales at electronics and appliance stores, which dropped 3.4%. Receipts at building material stores tumbled 5.9%. There were also declines in sales at furniture retailers as well as at sporting goods, hobby, musical instrument and book stores.

Online retail sales slipped 0.8%. But sales at clothing stores rose 3.0%. Consumers also increased spending at restaurants and bars, leading to a 1.8% rise in receipts. Sales at restaurants and bars are 70.6% higher compared to May 2020.

Excluding automobiles, gasoline, building materials and food services, retail sales dropped 0.7% after a revised 0.4% fall in April. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.

In a separate report on Tuesday, the Labour Department said its producer price index for final demand increased 0.8% last month after rising 0.6% in April. In the 12 months through May, the PPI accelerated 6.6%, the largest gain since November 2010, after advancing 6.2% in April.

The report followed news last week that consumer prices rose solidly in May, leading to the biggest annual increase in inflation in nearly 13 years.

With the PPI and CPI data in hand, economists are forecasting that the Federal Reserve's preferred inflation measure, the core personal consumption expenditures price index, rose at least 0.4% in May. That would push the year-on-year rate to about 3.4% from 3.1% in April. The US central bank has a flexible 2% target.

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