Americans are spending less on goods and more on vacation — and that resulted in retail stores shedding 61,000 jobs last month

woman and man on vacation with laptops — Maskot/Getty Images

In May, the US added more jobs than economists estimated, part of a robust recovery.
But the retail sector lost 61,000 jobs in May.
It's another example of Americans turning away from spending on goods and moving towards services.

Even as fears of economic turmoil loom, labor market data is telling a different story: The country is adding jobs just fine.

In May, the US added 390,000 nonfarm payrolls, down from the 436,000 gain in April. That's above the 325,000 jobs that economists polled by Bloomberg estimated the country would add.

The recovery is also fairly widespread.

"The report shows that the job market is shrugging off fears of a potential slowdown," Daniel Zhao, senior economist at Glassdoor, told Insider.

But, while almost every major industry saw jobs created in May, that wasn't the case for retail trade, which saw a net loss of 60,700 jobs, with most of the loss coming from general merchandise stores. It shows how Americans are shifting their spending priorities away from price-inflated big box stores — and putting that cash towards nice experiences instead.

As seen in the above chart, leisure and hospitality led the way in job growth. While leisure and hospitality had a net gain of 84,000 jobs in May, it's still 1.3 million payrolls below February 2020's level — a sign of the recovery still left to go.

Nick Bunker, economic research director at Indeed Hiring Lab, said that it may be some time before leisure and hospitality in the US is back to where it stood before the pandemic in February 2020. One reason for this could be because there's not as much demand as there once was, he added.

When everything costs more, Americans want to spend on experiences

The job loss in big box retailers makes sense given recent dreary earnings calls, Bunker pointed out. The dip may also be because of concerns over overstaffing, he said.

"It's sort of surprising" that losses "showed up that quickly and so largely in the data — but that seems a likely culprit for what we're seeing there," Bunker said.

Bunker said that if there was a slowdown in transportation and warehousing, which saw a net gain of 47,000 in May, then that could show "we're seeing the labor market impacts of a shift in consumption."

Consumer spending is rotating from goods to services, according to Zhao: "We should naturally see a pullback in retail and a resurgence in industries like travel and tourism."

There were already signs that retail trade was cooling off. The number of job openings in retail tumbled in April 2022. Big box retail stores have been reporting weaker-than-expected earnings, and retailers may even start discounting items again as they're stuck with excess inventory.

Some of that may be due to American customers acting with their wallets, and pushing back against rising costs. With gas prices hitting record highs and inflation still hovering near 41-year highs, it makes sense that Americans are spending less — especially amid fears that consumers are burning through the savings they already have.

They're still willing to shell out money for a summer break, though. Vacations are also growing pricier and high gas prices mean some Americans are thinking about taking fewer or shorter trips this summer, but that's not deterring them from seeking out some time away. TSA checkpoint travel numbers show people are still traveling at rates nearing pre-pandemic levels. Spending on goods is fairly flat, according to the Bureau of Economic Analysis, but spending on services is chugging along.

That's part of a "normalization," according to Zhao, where the economy is moving from a pandemic era to a more post-pandemic era, and shifting away from elevated retail spending.

"We aren't in the phase that we were in last year, where the economy was accelerating really dramatically," Zhao said. "Now we're settling into this new normal, where growth might be a little bit slower — but that slowing is more of a normalization rather than a sign that we're about to fall off a cliff."

Read the original article on Business Insider