U.S. Retail Sales (May 2025)

Retail sales decline in May as auto sales cool off     

• Retail and food services sales declined in May, falling by 0.9% month-on-month (m/m). The headline sales were dragged lower by a drop in motor vehicle and parts sales (-3.5% m/m). April's figures were also revised lower from a 0.1% gain to -0.1% decline.
• Sales at gasoline stations were lower on the month, declining for the fourth consecutive month (-2.0% m/m) due to lower prices at the pump. Sales of building materials and equipment stores have also pulled back (-2.7% m/m), following two months of gains ahead of the tariffs.  
• Sales in the "control group", which excludes the three volatile components mentioned above (i.e., autos, gasoline and building supplies) fared better, increasing by (0.4% m/m). Sales pulled back at electronics and appliance stores as tariff front-loading on these goods normalized. However, there were some good gains in other categories, led by miscellaneous stores retailers (+2.9% m/m), sporting goods and book stores (+1.3% m/m) and clothing stores (+0.8% m/m).  
• Sales at bars and restaurants – the only service category in the report – declined by 0.9% m/m, but this comes on the heels of two months of strong gains.

Key Implications

• A flurry of activity in anticipation of tariffs boosted consumer spending earlier this year, but that momentum is now looking to have run its course, with retail sales declining in both April and May. Car sales came back to earth in May, following outsized gains in the prior two months as consumers rushed to replace their vehicles ahead of the tariffs. The same is also true for purchases of building materials, electronics and appliances. Consumers have shown more caution recently, with saving rate moving higher in April - potentially signalling rising precautionary savings. A pullback in spending on dining out, which also eased in May, may further suggest that consumers' willingness to spend on discretionary items might be waning.  
• Despite the heightened policy uncertainty, key consumer fundamentals, such as the labor market, have shown more resilience than previously expected. The same is true for inflation, which has continued to cool on trend through most of this year. However, we anticipate job growth to slow in the coming months, while inflation is likely to turn higher as higher prices of goods are likely to more than offset the cooling in services inflation. Taken together, we expect that these forces will meaningfully slow consumer spending through the second half of this year.

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