Consumer spending drops despite improved sentiment
Consumer spending declined sharply in May, according to new Commerce Department data released Tuesday. Retail sales fell 0.9% month-over-month, a steeper drop than the 0.6% decline expected by economists surveyed by Dow Jones. The report, adjusted for seasonality but not inflation, reflects growing unease over the economy amid ongoing tariff uncertainty and geopolitical tensions.
This marks the second consecutive monthly decline, following a 0.1% dip in April. On a year-over-year basis, retail sales rose 3.3%.
Auto, gas and restaurant spending lead decline
Motor vehicle and parts dealers saw a sharp 3.5% sales drop, while building material and garden supply stores posted a 2.7% decline. Falling energy prices pushed gas station receipts down 2%. Bars and restaurants also suffered, with sales dropping 0.9%.
Spending had surged in March as consumers front-loaded purchases ahead of President Donald Trump’s “liberation day” tariffs set for April. That momentum has now clearly faded.
Core sales up, but outlook remains cautious
Excluding autos, retail sales were down 0.3%, worse than the expected 0.1% increase. However, the control group — which excludes autos, gas, building materials, and food services — posted a 0.4% increase. This measure is used to calculate consumer spending in GDP and may soften the economic blow.
Some segments showed resilience: miscellaneous retailers gained 2.9%, online sales rose 0.9%, and furniture stores added 1.2%.
Markets react as growth fears persist
Following the release, U.S. stock futures remained in negative territory, and Treasury yields declined, signaling investor concerns about the consumer’s strength. Heather Long, chief economist at Navy Federal Credit Union, said, “Families are wary of higher prices and are being a lot more selective with where they spend their money.”
Despite May’s weak spending figures, consumer sentiment surveys showed slight improvement. Yet the damage from tariff uncertainty continues to weigh on household and business confidence. GDP fell at a 0.2% annualized pace in Q1, though the Atlanta Fed projects a strong rebound to 3.8% growth in Q2 — a number likely to be updated after these retail figures.
In related data, import prices were flat in May, while export prices fell 0.9%, according to the Bureau of Labor Statistics.