WASHINGTON, D.C.: Retail sales dropped sharply in May as consumer spending slowed after a strong start to the year, primarily due to concerns over President Donald Trump's looming tariffs on nearly all imports.
The Commerce Department reported a 0.9 percent decline in overall retail sales—including stores and restaurants—marking a deeper drop than April's 0.1 percent dip and reversing March's substantial 1.5 percent gain.
A major factor in the decline was a significant pullback in auto sales. In March, many consumers rushed to purchase vehicles ahead of the expected 25 percent tariff on imported cars. As a result, auto sales plunged by 3.5 percent in May. Even excluding autos, retail sales still fell by 0.3 percent.
Despite the downturn, some underlying economic indicators remain stable. Inflation is easing, unemployment is low, and a narrower sales measure—excluding cars, gas, and restaurants—actually increased by 0.4 percent, suggesting consumers are still spending selectively on discretionary items.
Economists caution against reading the May dip as a sign of broad weakness. Retail sales make up about a third of consumer spending, while the rest comes from services like healthcare, education, and housing. Many analysts still expect modest growth in consumer spending during the April-to-June quarter.
Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management, said that while consumers are showing more caution, they haven't stopped spending altogether. She noted that, even amid uncertainty about tariffs, underlying demand remains resilient.
Still, some sectors were hit hard. Home and garden store sales dropped 2.7 percent, while grocery, electronics, and appliance store revenues also declined. Restaurant and bar sales—a barometer of consumer confidence—fell 0.9 percent in May after rising in April. In contrast, online retailers saw a 0.9 percent increase in sales, clothing stores rose 0.8 percent, and furniture outlets gained 1.2 percent.
Falling gas prices contributed to a 2 percent revenue drop at gas stations, offering some relief at the pump but also reflecting lower fuel demand.
Businesses reliant on imported goods are increasingly impacted. Paul Cosaro, CEO of Picnic Time, said retail orders are down 40 percent compared to last summer, as tariff-related price uncertainty causes retailers to hold back. His company sources 80 percent of its products from China and has seen tariff costs triple—from about US$330,000 last year to $1 million this year—forcing a hiring freeze.
Rising prices are reshaping consumers' shopping habits. Pennsylvania mother of three Liza Gresko said she now buys in bulk, chooses generic brands, and relies more on thrift stores to stretch her budget.
Retailers are also adjusting, launching back-to-school promotions earlier to encourage spending before potential price hikes hit harder. While inflation remains manageable for now, companies like Walmart and Lululemon are already raising prices, signaling more challenging times may lie ahead.
