Americans turn cautious and retail sales slide after a spring spending surge to beat tariffs
Retail sales fell sharply in May as consumers pulled back from a spending surge early this year to get ahead of President Donald 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%.
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.
"Today's data suggests consumers are downshifting, but they haven't yet slammed the brakes," Ellen Zentner, chief economic strategist for Morgan Stanley wealth management, said in an email. "Like the economy as a whole, consumer spending has been resilient in the face of tariff uncertainty."
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.
It is a difficult time for retailers, many of whom built up large inventories this spring after Trump warned that he would impose widespread import taxes. Traffic at the port in Los Angeles has fallen sharply in recent weeks, suggesting fewer goods are entering the United States.
Some consumer products companies say they are seeing the impact of tariffs on their own costs and sales.
Paul Cosaro, CEO of Picnic Time, Inc, which makes picnic accessories like baskets, coolers, and folding chairs, said that orders from retailers are down as much as 40% this summer compared with a year ago. His company sells to a variety of stores like Target and Williams-Sonoma.
Cosaro noted that some stores have been cautious because they're not sure how shoppers will react to higher prices. Some cancelled orders because Cosaro couldn't tell them how much the new prices would be due to all the uncertainty. Roughly 80% of the company's goods are made in China, with the rest in India and Vietnam.
The company, founded roughly 40 years ago and based in Moorpark, California, was forced to raise prices on average from 11% to 14% for this summer selling season, Cosaro said.
A folding outdoor chair now costs $137 this month, up from $120 in late 2024, he added. The company's sales are still down this year, even though some shoppers accelerated their purchases out of concern that prices would rise.
"Shoppers are very price sensitive," Cosaro said.
The company has implemented a hiring freeze because of all the extra tariff costs, he added. So far this year the company, which employs from 70 to 100 people, has had to pay $1 million in tariffs. A year ago at this time, the bill was a third of that amount.
The retail sales report comes as other evidence indicates shoppers have been pulling back more amid worries about higher prices from Trump's tariffs.
Naveen Jaggi, president of retail advisory services in the Americas for real-estate firm JLL, said that he's hearing from malls that sales are slowing down heading into the official summer months. Retailers are pushing up back-to-school promotions to this month from July, he said. They want to get shoppers in early for fear consumers may not want to spend in the later months when prices will likely go up, he said.
So far, Trump's tariffs haven't yet boosted inflation. Consumer prices rose just 2.4% in May compared with a year ago, the government said last week.
Many stores and brands, including Walmart, Lululemon, and J.M. Smucker Co., have said they plan to or have raised prices in response to tariffs.
Deckers Outdoor, which is behind such shoe labels as Hoka and Uggs, said late last month that it plans price increases, which will likely hurt sales.
"We expect to absorb a portion of the tariff impact," Chief Financial Officer Steven Fasching told analysts. "We also believe there is potential to see demand erosion associated with the combination of price increases and general softness in the consumer spending environment."
D'Innocenzio reported from New York.
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