The news: US retail sales rose 0.9% MoM in May, more than expected, as consumers continued to spend despite declining confidence and buying power.

• Sales were up 6.9% YoY, outpacing the 4.2% inflation rate recorded for the month.
• 12 of the 13 categories tracked by the US Commerce Department reported YoY gains, with furniture and home furnishings being the sole exception.

Why it matters: May’s retail sales numbers are the latest indication that consumer spending looks stronger than sentiment as measured by the University of Michigan and the Conference Board. Both indexes had declines in May, with the University of Michigan citing record low sentiment as the Conference Board noted a dip in confidence due to rising energy prices and other Middle East conflict fallout.

There are some important nuances. The government figures don’t adjust for inflation or reflect diverging spending behaviors between lower-income and more affluent households. Still, the overall picture points to strength even as higher gas prices strain consumer budgets.

• Bank of America said that aggregated credit and debit card spending per household excluding gas rose 3.9% YoY in May, reflecting continued demand for discretionary goods and services across income levels.
• Though 32% of US consumers report being financially stressed, the majority (51%) are “financially conflicted,” meaning they are somewhat confident but occasionally need to make spending tradeoffs, according to a recent Edward Jones and Gallup poll.

Implications for retailers: Whether this resilience will hold depends on several factors. A deal to end the war between Iran and the US could ease pressure on oil prices, though the timeline—and terms—for the agreement remain opaque. Additional tariffs could offset any resulting relief for consumers, and slowing wage growth remains a threat to buying power.

Even as consumers keep spending strongly, where they do so is changing. Shoppers are seeking out retailers with strong value propositions, such as Walmart and Costco, and are being pickier about where they allocate discretionary dollars. Data from Capgemini found that better loyalty benefits (65%) and promotions (62%) were among the leading reasons shoppers switch brands. To retain customers, companies will need to be sharp on pricing, offer robust loyalty perks, and deliver a top-notch customer experience.