WASHINGTON - Retail sales fell 0.2% in May, the first decline in 11 months, led by a sharp drop in auto sales as a spending slowdown in the coming months could threaten the economic recovery for state and local governments, the Commerce Department reported Tuesday.
Sales excluding autos increased 0.3% in May, the smallest gain in 10 months. The March tsunami in Japan and subsequent nuclear crisis disrupted global supply chains and threw into havoc auto inventories, economists said. Motor vehicle and parts sales sank 2.9% for the month, the largest decline since February 2010.
April retail sales were revised lower to a 0.3% increase from a 0.5% gain reported last month. April sales excluding autos were revised to a 0.5% increase from a 0.6% rise.
Economists expected retail sales would fall 0.4% in May and sales excluding autos would increase 0.2%, according to the median estimate from Thomson Reuters.
For the year ending in May, total retail sales increased 7.7% and sales excluding autos were up 8.2%.
The weak May sales figures pose a challenge to state and local governments, which have been seeing stronger sales tax revenues across the country.
The May decline in retail sales "warns of a slower rate of growth for sales tax revenues in the months ahead," Jon Lonski, chief economist at Moody’s Analytics, said before the report. He said he is forecasting retail sales growth to moderate this summer.
"State and local governments are taking a risk if they are projecting an even faster rate of growth for retail sales" in the coming months, Lonski said.
State governments rely on sales tax revenues for about one third of their total tax revenue, according to the Census Bureau. Texas last month reported that its April sales tax collections were up 11.4% year-over-year. Pennsylvania in May reported its sales tax receipts for the first four months of the year were $144.1 million above budgeted estimates.
In all, states are estimating their sales tax revenues will rise 4.9% for the fiscal year ending June 30 for most states, according to a survey from the National Governors Association and the National Association of State Budget Officers released earlier this month.
