Retail Sales (Census)

US retail and food services sales declined by 0.9% in May 2025 to $715.4 billion, marking the largest drop since January, according to the Census Bureau. Compared to May 2024, sales rose 3.3%. Retail trade sales also fell 0.9% from April, while non-store retailers and food services recorded year-over-year gains of 8.3% and 5.3%, respectively. The drop in May was primarily driven by a slowdown in motor vehicle sales, as the urgency to buy ahead of possible tariff hikes faded (and now the payback). And while gasoline sales also declined, retail sales excluding autos declined 0.3% on the month, and 0.1% also excluding sales recorded by gasoline stations.

Interpretation

May’s 0.9% drop in US retail and food services sales, totaling $715.4 billion, marks the sharpest monthly decline since January and raises questions about the durability of consumer demand heading into the second half of 2025. The downward revision of April’s figure - from a previously reported +0.1% to -0.1% - reinforces a deteriorating trend that may no longer be dismissed as noise.

The headline figure was heavily influenced by a steep pullback in motor vehicle purchases, which had been temporarily inflated earlier in the year by fears of tariff-induced price hikes. With that rush now behind, auto sales reversed sharply. Excluding autos, retail sales still fell by 0.3%, a disappointing result versus the +0.1% gain expected. The simultaneous decline in service station receipts, tied to falling gasoline prices, also weighed on the monthly figure.

From a broader perspective, year-over-year sales growth stood at 3.3%, and the March-May period posted a 4.5% increase versus the same period in 2024. These figures suggest some underlying strength. But adjusted for inflation - particularly sticky in core services - the real gain in purchasing power may be minimal or even negative.

The silver lining, statistically speaking, lies in the retail control group (which excludes autos, gas, food services, and building materials). This component, which feeds directly into GDP calculations, rose 0.4% in May. Notably, non-store retailers, a proxy for e-commerce, were up 8.3% year-over-year, and food services and drinking places climbed 5.3%.

However, spending at bars and restaurants dropped by the most for any single month in more than two years hinting at a broader consumer pullback only starting with the payback. The control group’s rise masks softening in broader categories. Retail trade sales overall fell 0.9% month-over-month, while revisions to prior months - April’s move from slight gain to contraction - suggest that earlier optimism may have been overstated.

The concern now is forward-looking: if tariff effects shift from timing distortions to sustained pressure on real disposable incomes, consumption may weaken more broadly. In short, the May sales report shows a consumer beginning to retreat from the front lines, especially in discretionary big-ticket items. If this retreat broadens, it could challenge the soft-landing narrative and usher in a more protracted deceleration of US growth and then further effects from there on jobs and employment.