U.S. consumer spending witnessed a notable decline in May, as reported by the Commerce Department on Tuesday, affected by decreased gasoline sales and growing apprehension about the economic landscape.
Retail sales decreased by 0.9%, surpassing the Dow Jones consensus forecast of a 0.6% reduction. This downturn followed a minor 0.1% drop in April and coincided with uncertainty stemming from tariffs and global political tensions.
When excluding automobile sales, there was a slight decline of 0.3%, which underperformed against expectations of a 0.1% increase.
Conversely, when excluding categories like auto dealers, building materials suppliers, and gas stations, sales for the control group rose by 0.4%. This figure is significant as it informs the calculations for gross domestic product.
Building materials and garden supplies retailers reported a sales drop of 2.7%, while lower energy prices contributed to a 2% decrease in gasoline station revenues. Retailers of motor vehicles and parts experienced a 3.5% fall in sales, with bars and restaurants also seeing a decline of 0.9%.
On a more positive note, miscellaneous retailers enjoyed a 2.9% increase in sales, online sales rose by 0.9%, and furniture stores reported a 1.2% sales uptick.
Following the release of this data, stock market futures turned negative, and Treasury yields saw a decline.
Heather Long, chief economist at Navy Federal Credit Union, commented, “Americans bought cars in March ahead of tariffs and stayed away from car dealerships in May. Families are wary of higher prices and are being a lot more selective with where they spend their money. People are hunting for deals and aren’t eager to buy unless they see a good one.”
This retreat in retail sales occurred even as surveys indicated an improvement in consumer sentiment during May, although it came from previously declining levels. The ongoing trade conflict triggered by tariffs under the Trump administration has negatively impacted consumer and business confidence, although a temporary easing in the situation during the 90-day negotiation period has resulted in slightly better responses.
Previously, GDP contracted at an annualized rate of 0.2% in the first quarter, but forecasts suggest a rebound. The growth expectation for the second quarter leading up to the retail sales report was set at 3.8%, as per the Atlanta Federal Reserve’s GDPNow rolling data tracker. An update to this tracker is expected later today.
Additionally, in other economic developments reported on Tuesday, import prices showed no change, counter to an anticipated 0.1% decline, while export prices fell by 0.9%.
