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Retail sales fell in May, dragged down by declines in gas and auto purchases during the second month that a wide array of President Trump's tariffs were in effect.
Headline retail sales declined 0.9% in May, surpassing economists' expectations for a 0.6% decline month on month. By comparison, sales decreased 0.1% in April, according to revised Census Bureau data. A 2% decline in gasoline sales, a 3.5% slide in auto purchases, and a 2.7% decline in building materials drove the May headline number lower.
"The weakness in retail sales in May was mostly due to temporary drags from the end of tariff front-running and the unseasonably wet weather in the east of the country, so should reverse in June," Capital Economics North America economist Bradley Saunders wrote in a research note Tuesday morning.
There was some positive news in the release: The control group in Thursday's release, which excludes several volatile categories and factors into the gross domestic product (GDP) reading for the quarter, rose 0.4%. That compares with a 0.1% decrease seen in April. Economists expected a 0.3% increase. The largest increase in May was seen in miscellaneous store retailers, where sales rose 2.9%.
May sales excluding auto and gas declined 0.1%. Economists had expected a 0.3% rise. In April, sales excluding auto and gas rose 0.1%.
Saunders added that the increased sales in the control group suggest that "overall consumption continues to look healthy."
The data comes as investors have been closely watching how the implementation of President Trump's tariffs will impact data. The survey month encapsulated Trump's recent tariff rollbacks, including the 90-day tariff pause between the US and China. To date, the increased duties have overall done little to push up inflation, while labor market data has shown gradual cooling.
Morgan Stanley chief US economist Michael Gapen wrote in a note to clients on Tuesday that May's retail sales release affirms their view that that US consumer remains healthy and willing to spend, for now. But he and other economists expect that story to change in the second half of 2025.
"We have not yet seen clear impacts of tariffs in prices," Gapen said. "We continue to believe we first need to see the price impact that would impact real spending in the third quarter. We then expect the consumption and growth impacts come after."
Gapen added his team expects the tariff impact on price increases to peak in August and then lead to weaker consumer spending growth in the latter half of the year.
