Topline
Retail spending dropped by 0.9% in May—the second month in a row of falling spending as consumers appear to grow more cautious faced with anxiety over potential tariffs as the U.S. government negotiates trade deals with China and the European Union.
The decrease in retail spending was driven by a steep decline in car sales, just two months after … More
Key Facts
The relatively sharper decline was driven by falling motor vehicle and car parts sales, which declined by 3.5% in May, according to Census Bureau data released Tuesday morning.
The data also indicates consumers are cutting back slightly on food expenditures, with spending at grocery and liquor stores down by 0.7% and spending at restaurants and bars down by 0.9%.
Spending on building materials, electronics, and healthcare products all decreased as well, but sales of furniture, clothing, sporting goods, and purchases from general merchandise stores and online retailers slightly increased over the last month.
Contra
The Federal Reserve Bank of Atlanta is still forecasting GDP growth at a rate of 3.5% in the second quarter of 2025, down slightly from its earlier prediction of 3.8% growth last week.
Key Background
Retail spending increased at an unusually high rate earlier this year, as economists predicted consumers would try to get ahead of President Donald Trump’s planned tariffs on foreign auto manufacturers. Spending on cars and auto parts in March increased by a staggering 8.9%, according to the Census Bureau’s most recent data. “Given that March had seen the strongest monthly sales in two years, we expect some continued weakness in motor vehicle sales in June as the ‘pull ahead’ effect continues to suppress demand,” Lydia Boussour, the senior economist at EY-Parthenon told Forbes in emailed comments. The Census Bureau initially reported that retail sales continued to increase in April by about 0.1%, but quickly revised their calculations to indicate a slight decrease by 0.1%.
Tangent
Gasoline spending also fell by about 2% in May, likely driven by falling gas prices. Average gas prices have fallen below $3.00 per gallon in 25 states, although industry analysts believe this relief is unlikely to last long. The conflict between Israel and Iran could potentially raise oil prices as it threatens oil shipments through the Strait of Hormuz, which sees an average of 21 million barrels per day, according to the U.S. Energy Information Agency.
Key Question: How Will This Impact The Market?
Experts told Forbes that the most recent data indicates consumers are becoming more uneasy as potential tariffs and international conflict increase volatility in the market. “While household balance sheets remain healthy, consumers are growing more cautious and increasingly selective with their spending amid lingering policy uncertainty, deteriorating labor market prospects and tariff anxiety,” Bossour said. The EY-Parthenon economist predicted a “sharp deceleration in spending” the rest of the year before beginning to recover in 2026. “The US consumer has kept economic growth going despite the tariff threats and trade disruptions,” Chris Zaccarelli, the chief investment officer at Northlight Asset Management, told Forbes in emailed comments. “If the consumer begins to rollover, then it could lead to layoffs and a vicious cycle of slower spending and higher unemployment.” Zaccarelli said his firm remained cautious, with factors like the pending trade deals with China and the European Union, as well as the escalating conflict in Iran, potentially impacting the market in the near future. However, Zaccarelli also said that this month’s decline could still be a “one-off.” Removing spending on cars and gasoline, overall retail spending has only declined one month out of the year so far.
Source: https://www.forbes.com/sites/zacharyfolk/2025/06/17/retail-spending-falls-for-second-month-in-a-row-as-consumers-grow-anxious/