Retail sales in the U.S. dropped in May as the country continues to adjust its trade policies, impacting both consumers and businesses.
According to the Commerce Department, retail and food service sales fell by 0.9% from April, totaling $715.4 billion in May. This drop was sharper than the anticipated 0.6% decline forecasted by economists.
This marks the second consecutive month of decline since March 2023, and it represents the most significant monthly drop. However, sales did see a 3.3% increase compared to the same time last year.
Sales of automotive and auto parts experienced a notable decline of 3.5% for the month. These sectors were particularly targeted by previous tariffs imposed by President Trump, which started at 25% before being reduced.
Recently, Trump hinted at the possibility of further tariffs on cars to encourage more domestic production in the industry. “I might raise that tariff in the not too distant future,” he mentioned at a recent event, adding, “The more you go, the more likely they will build plants here.”
Additionally, restaurant sales saw a 0.7% decrease. Gas station sales were down 2% month-over-month, while sales of electronics and electrical appliances dropped by 0.6%.
Consumer spending surged late last year and early 2023 as people anticipated future tariffs, but that momentum seems to be waning now.
While tariffs haven’t yet shown up significantly in price data, many economists are bracing for inflationary effects due to these tariffs. Oren Klachkin, an economist, noted, “We expect a greater impact in the summer as these costs are passed on to consumers. Retail sales in the third quarter will likely look worse than the data suggests now.”
Lydia Boosole, another economist, pointed out that these tariffs could lead to weaker consumer demand, which may extend into the summer months.
Interestingly, while travel-related expenses dipped in May, spending on domestic products and activities increased. For instance, furniture purchases rose by 1.2%, and spending on hobbies and books saw a 1.3% increase.
The White House has stated that it is currently engaged in negotiations for multiple bilateral trade agreements following the suspension of some specific tariffs.
