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- Consumer spending on retail and food services was down 0.9% in May.Auto dealers have a stockpile of vehicles with lower demand in the market.Tariffs continue to weigh heavy on future business decisions.
American shoppers are starting to step on the brakes.
President Donald Trump's seesaw sentiment on tariffs led many Americans to stock up on goods. The latest retail sales data shows this may be slowing. The Census Bureau reported Tuesday morning that retail and food services sales were down 0.9% over the month in May, a larger drop than economists expected.
"Consumers tightened their purse strings in May after rushing to beat tariff-fueled price increases in March and April," Bill Adams, Chief Economist for Comerica Bank, said regarding the release. "But consumers didn't just pull back on durable goods categories like cars, appliances, or electronics. They also reined in spending on day-to-day expenses like groceries and restaurants."
The tariffs in question have been a roller coaster. From CEOs mentioning "tariffs" more times than last year on earnings calls, to comparing Trump's plans to a "Greek tragedy," consumers and investors have remained perplexed. While some parts of trade deals are confirmed, negotiations are ongoing before the bulk of the new tariffs are set to go into effect on July 9.
Following the Liberation Day announcement, consumers panicked and bought lots of items before grocery store prices and Temu gadgets shot up in price.
The new retail sales release is one of the first signals that overseas buying may be coming to a halt.
A 3.5% month-over-month drop for car dealers and auto parts led the weakening retailer data, coupled with a 2.7% decline for building supplies shops. Adams said "weak consumer confidence was to blame" for the lack of shoppers in May.
Additionally, this drop in car sales also coincided with an increase in dealer inventories as production tried to meet demand. Cars are piling up at the dealership as the buying frenzies cool.
"The auto industry ramped up production in May after consumers' rush to buy new vehicles in March and April depleted inventories on dealer lots. But higher assemblies might not last, since new car and light truck sales fell sharply in May," Adams said.
Trump and his team have said car prices will not be affected by tariffs. Some car manufacturers have disagreed. Honda, GM, and Hyundai expect increased prices as a result of imposed tariffs.
Economic hard data like the better-than-expected jobs report for May show the economy is still going strong. Consumer sentiment and expectations remain sour from Trump's spring tariff announcement.
