Retail sales fell sharply in May as consumers pulled back from a spending surge earlier this year to get ahead of President Trump's sweeping tariffs on nearly all imports. Sales at retail stores and restaurants dropped 0.9% in May, the Commerce Department said Tuesday, after a decline of 0.1% in April. The figure was pulled down by a steep drop in auto sales, after Americans ramped up their car-buying in March to get ahead of Trump's 25% duty on imported cars and car parts. Excluding autos, sales fell 0.3%, reports the AP.
The sales drop is hitting after sharp declines in consumer confidence this year. Still, inflation has cooled steadily and unemployment remains low, which could fuel steady spending in the coming months, as the economy has remained mostly solid. A category of sales that excludes volatile sectors such as gas, cars, and restaurants rose last month by 0.4%, a sign that consumers are still spending on some discretionary items. Overall, the report suggests consumers have pulled back a bit but not dramatically so. The retail sales report covers about one-third of consumer spending, with the other two-thirds consisting of spending on services. Economists expect overall consumer spending to grow in the April-June quarter.
"Like the economy as a whole, consumer spending has been resilient in the face of tariff uncertainty," said Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management. Yet many categories saw sharp declines. Car sales plunged 3.5%, while sales at home and garden centers dropped 2.7%. They fell 0.6% at electronics and appliance stores and 0.7% at grocery stores. There were some bright spots: Sales rose 0.9% at online retailers, 0.8% at clothing stores, and 1.2% at furniture stores. Sales at restaurants and bars, a closely watched indicator of discretionary spending, fell 0.9% in May, though that followed a solid gain of 0.8% in April.
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