U.S retail sales take a hit with biggest decline in 4 months — economists warn of consumer slowdown ahead

Retail sales in the United States fell 0.9% in May, the steepest monthly drop in four months, as Americans pulled back on car purchases due to tariff-related price hikes and felt the squeeze of economic uncertainty, as per a report.

Big-Ticket Purchases Take a Hit

The drop in US retail sales, which the Commerce Department reported Tuesday, indicated that while consumers continue to spend, they are changing their spending habits, and economists caution it could be the beginning of a wider slowdown as the year progresses, according to Reuters.

Deputy chief economist at Oxford Economics, Michael Pearce highlighted that, "Tariff announcements have had a clear impact on the timing of large-ticket purchases, notably autos, but there are few signs yet that tariffs are leading to a general pullback in consumer spending," quoted Reuters. Pearce also pointed out that, "We expect a more marked slowdown to take hold in the second half of the year, as tariffs begin to weigh on real disposable incomes," as quoted in the report.

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US Retail Sales Slipped in May

The Commerce Department found that sales of auto and parts dealerships dropped 3.5% after falling 0.6% in April, reported Reuters. As per the report, retail sales at building material and garden equipment and supplies dealers fell 2.7%, and even sales at service stations decreased 2.0%, while those at electronics and appliance stores dropped 0.6%, as per the report.

As per Reuters, sales at food services and drinking places, which is the only services component in the Commerce Department report, slipped 0.9%, and economists consider dining out as a key indicator of household finances.

Some Bright Spots Amid the Dip

While, online sales rose 0.9%, sales at clothing retailers jumped 0.8%, and furniture store sales increased 1.2%, reported Reuters. Even sporting goods, hobby, musical instrument and bookstore sales jumped 1.3%, as per the report.

The Road Ahead

Chief US economist at Pantheon Macroeconomics, Samuel Tombs, cautioned that "Past experience suggests the biggest price rises will come in July, though the full impact of the tariffs likely will emerge across the whole of the remainder of the year," quoted Reuters.

Tombs added, "That will weigh on growth in real incomes at the same time as a softening labor market will make people cautious with discretionary spending. Meanwhile, households no longer have 'excess savings' or strong growth in stock prices to spur them to spend," as quoted in the report.

FAQs

Why did retail sales fall in May?
Consumers pulled back on spending, especially on cars, after prices rose due to new tariffs, as per Reuters report.

Are people still spending money at all?
Yes, but they’re becoming more selective. Online sales and spending at clothing and furniture stores actually increased.