Consumer Spending Drops As Retail Sales Decline To Four-Month Low

In May, Americans significantly reduced their spending, primarily due to new tariffs on imports. Retail sales fell by 0.9%, following a slight decline in April, according to the Commerce Department. The drop was largely driven by a sharp decrease in auto sales, as many consumers had rushed to buy vehicles in March to avoid President Donald Trump's 25% tariff on imported cars and parts. Excluding autos, sales fell by 0.3% in May.

Despite the overall decline, certain sectors saw growth. Sales at online retailers increased by 0.9%, clothing stores by 0.8%, and furniture stores by 1.2%. However, sales at restaurants and bars, a key indicator of discretionary spending, fell by 0.9% in May, following a gain in April.

Retailers are facing challenges as they navigate the impacts of tariffs.

Despite these challenges, some experts believe that consumer spending remains resilient. Ellen Zentner, chief economic strategist for Morgan Stanley, stated, "Today's data suggests consumers are downshifting, but they haven't yet slammed the brakes." The National Retail Federation's Chief Economist Jack Kleinhenz noted that core retail sales, excluding volatile sectors, continued to grow, supported by wage gains and stock market improvements.

Looking ahead, economists expect consumer spending to grow in the April-June quarter, although the full impact of tariffs may be felt later this year.