What: US retail sales dropped 0.9% in May 2025, marking the largest decline in four months, driven by decreased auto purchases and broader consumer spending caution amid tariff concerns.

Why it is important: This significant decline, occurring amid rising tariff concerns and weakening consumer confidence, signals a potential turning point in consumer spending patterns that could reshape retail strategies across sectors.

The May 2025 retail sales report reveals a broader than expected 0.9% decline, representing the most substantial drop since January. Auto and parts dealerships experienced a sharp 3.5% decrease, while building materials fell 2.7%, and service stations saw a 2.0% decline due to lower gasoline prices. Food services and dining establishments registered a 0.9% drop, traditionally viewed as a key indicator of household financial health. However, some sectors showed resilience, with online sales increasing 0.9% and clothing retailers posting a modest 0.1% gain. The Federal Reserve's response has been measured, maintaining interest rates between 4.25% and 4.50% while monitoring both the economic impact of tariffs and regional tensions. Core retail sales, which correspond most closely with the consumer spending component of GDP, increased 0.4% in May, suggesting underlying stability despite broader market volatility.

IADS Notes: The May 2025 retail sales decline of 0.9% represents the culmination of mounting economic pressures throughout early 2025. This downturn follows May's three-year low in consumer sentiment amid growing tariff concerns , aligning with the National Retail Federation's April forecast of slower 2.7-3.7% growth for the year . The impact of new tariffs, projected to add $640 billion to import costs and increase annual household expenses by $1,200 , has accelerated the decline in consumer confidence that was already evident in February 2025 . This convergence of factors suggests a fundamental shift in consumer behaviour rather than a temporary slowdown.

US retail sales post biggest drop in four months