The news: US retail sales fell more than expected in May from April, the latest sign that tariff fears and economic volatility are affecting consumer spending.

• Retail sales fell 0.9% MoM, per the US Commerce Department, a greater drop than the 0.6% economists expected.
• Excluding autos, sales fell 0.3% MoM; analysts expected a 0.2% gain.

The big picture: The steep monthly drop obscures the larger fact that, even amid uncertainty, consumer spending has largely been resilient.

• On a YoY basis, sales in May were up a respectable 3.3%, with most retail categories in positive territory—an indication that shoppers are not yet in full austerity mode.
• That’s backed up by a slightly-bigger-than-expected increase in control group sales—which exclude food services, gas stations, auto dealers, and building materials stores—and are used to calculate GDP.

Shoppers’ efforts to buy ahead of tariffs also likely distorted May’s retail data. That’s particularly evident in the auto category, where sales fell 3.5% MoM—the biggest decline in over a year—but were still up 5.1% year to date.

Our take: While May’s retail sales data largely show that consumers are hanging in, the situation remains unpredictable—especially given the fact that tariff-driven price hikes have yet to kick in for a multitude of everyday purchases, including groceries and apparel.

• Consumer confidence remains well below what it was at the end of 2024, as concerns about the economy, employment, and finances remain elevated due to ongoing volatility and lack of clarity on tariffs.
• Even high-income consumers are beginning to rethink their spending, with many choosing to trade down or pull back on discretionary categories like dining out and luxury goods, according to an analysis of US consumer credit and debit card data by Consumer Edge.

Given those pressures—and taking tariffs into account—we expect retail sales to grow just 1.5% this year.