US retail sales fall in May as tariff anxiety continues to distort spending patterns

The economists attribute most of the declines to a reversal in purchasing behaviour driven by fear over President Donald Trump's upcoming trade tariffs.

US retail sales fell in May, the biggest decline since March 2023, after consumers pulled back from a spate of previous stockpiling this year. Retail sales comprised $715.4 billion, a decrease of 0.9% in April, and well below what economists estimated.

The April amount was also revised lower to a 0.1% decline, the Financial Times has reported.

The economists attribute most of the declines to a reversal in purchasing behaviour driven by fear over President Donald Trump's upcoming trade tariffs.

During March, consumers had triggered a mad dash into autos and other big-ticket items ahead of import price hikes that might have taken effect, leaving behind what now seems to be a short-lived and unsustainable surge. Auto sales drive the drop May's pullback was most evident in the car market, with auto and auto parts sales dropping 3.5%—the biggest drop of large retail categories.

Spending also dropped at restaurants, bars, and building supply stores, suggesting even more caution among shoppers. Consumers have been the main engine of US expansion ever since the coronavirus pandemic. The latest figures underscore that that is no longer necessarily the case," said ING chief international economist James Knightley.

"The tariffs-induced frontloading is reversing now—particularly in the auto sector—and that is dragging on the retail sales reports".

A second Federal Reserve report showed industrial production also fell in May, 0.2%, again suggesting the momentum driving US economic growth is waning with the onset of the second half of the year.

Core spending remains robust—at least for now

Though the head-line fall, the intrinsic well-being of consumer expenditure itself is not harmed in less up-and-down categories, according to some economists. National Retail Federation (NRF) says "core" retail sales—excluding gas, autos, and restaurants—were up 0.1% month-over-month and 3.9% year-over-year.

NRF senior economist Jack Kleinhenz said while consumers' behaviour is being influenced by trade policy uncertainty, the inflationary impact of tariffs remains to be seen.

"Consumers are cutting through uncertainty with trade policy, but I think the inflation with tariffs is going to be realized later in the year," he said.

Economists warn of more pressure ahead A few commentators see current volatility as a harbinger of things to come. "The data suggest cracks forming in spending," said Joe Brusuelas, chief economist at RSM US, suggesting that the US consumer may not be as reliable a growth driver in the next few months.

Oxford Economics deputy chief economist Michael Pearce agreed, stating that while tariff worries to this point have primarily been affecting the timing of spending, sharper declines are in the offing. "We expect a sharper slowdown to catch hold during the second half of the year, as tariffs begin to affect real disposable incomes," he stated.

For the moment, the May numbers show a consumer economy in transition—still consuming, but more hesitantly in light of higher prices and policy uncertainty. Whether this slowdown is transitory or signals a more permanent change may hinge on the speed and magnitude of the Trump administration's next round of tariffs.