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According to official data released by the US Census Bureau, US retail sales experienced a significant decline in May, marking the largest drop in two years. Sales totaling $715.4 billion were down by 0.9% from April, falling below economists’ expectations. This decline follows a surge in spending in March, driven by fears of impending tariffs on foreign imports imposed by President Donald Trump.
The recent drop in retail sales is attributed to the unwinding of the tariff-led frontloading, particularly in the auto sector. James Knightley, ING’s chief international economist, noted that consumer spending has been a key driver of US growth, but the recent data suggests a shift in this trend.
In addition to the decline in retail sales, industrial production also saw a decrease in May, falling by 0.2% according to a report from the US Federal Reserve. These figures underscore the impact of President Trump’s trade war on consumer behavior and economic indicators.
Automotive sales experienced the sharpest decline in May, dropping by 3.5%. Spending at bars, restaurants, and building supply purchases also decreased, signaling potential cracks in consumer spending habits. Joe Brusuelas, chief economist at RSM US, warned of the uncertainty surrounding future consumption patterns.
Despite the fluctuations in certain sectors, some economists believe that underlying spending in less volatile categories remains stable. The National Retail Federation reported a 0.1% increase in “core” retail sales month on month and a 3.9% increase year on year, excluding sales at car dealers, petrol stations, and restaurants.
While tariff announcements have influenced the timing of major purchases like cars, Oxford Economics deputy chief economist Michael Pearce noted that there is limited evidence of a widespread pullback in consumer spending. However, he anticipates a slowdown in the second half of the year as tariffs impact real disposable incomes.
As the trade war continues to unfold, consumers are navigating through the uncertainty associated with trade policies. The full impact of tariffs has yet to be fully realized, but economists predict a more pronounced effect on consumer spending in the coming months. Stay informed with the latest updates on the US economy to stay informed and make informed decisions in a volatile economic climate.
