Retailers are eyeing consumer spending behavior as U.S. households feel the squeeze from inflation, higher gas prices, and rising interest rates.
"The consumer is the pulse of the U.S. economy, and trying to understand what's happening in real time, I think, is critical," Mastercard Chief U.S. Economist Michelle Meyer told Yahoo Finance (video above).
Retail sales — a measure of spending at stores, online, and in restaurants — fell 0.3% in May, marking the first decline in five months, the Commerce Department said last Wednesday.
The plunge was driven in large part by a sharp drop in car purchases as vehicles and borrowing became expensive. Excluding autos and gasoline, retail sales rose just 0.1% in May, well behind the pace for last month. Data also showed a slowdown in online shopping with a 0.1% decline in activity during the month.
The change in spending patterns left retailers feeling the pinch on their margins as they deal with inflationary pressures and a consumer that is increasingly turning away from goods spending towards services.
"I think the challenge for retailers right now is to be as nimble as possible in terms of responding to consumer demand," Meyer said.
Some big box stores like Walmart (WMT) and Target (TGT) warned investors that their profits would decline in the short term as the retailers mark down unwanted items, cancel orders, and take steps to unwind excess inventory.
Target, for example, slashed its profit margin forecast for the second fiscal quarter as the company works through inventory.
"Everybody was caught off guard when the pandemic hit and people wanted to snatch up as many goods as they could — big-ticket items, everything related to housing — and there was a major shortage and we couldn't accommodate that demand," Meyer said.
However, things have changed.
"There's a lot more spending related to leisure and this kind of 'experience' economy," she added. "It's about being nimble. It's about being able to respond to these changes in consumer behavior and being able to realize where and how you can pass on [those] costs."
Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv