• US retail sales fell 0.9% month-over-month in May, worse than the expected 0.7% decline.
  • Core "control group" sales, a key GDP input, rose 0.4%, slightly above forecasts.
  • Discretionary spending weakens as tariffs push prices higher, with apparel and general merchandise hit hardest.

A Mixed Picture for Consumer Spending

US retail sales unexpectedly softened in May, declining 0.9% from April—worse than the 0.7% drop economists had projected. The pullback was broad-based, with sales excluding autos falling 0.3% (versus expectations of a 0.1% gain) and sales excluding autos and gas dipping 0.1%.

The lone bright spot came from the "control group" measure—which strips out volatile categories like food services and autos—rising 0.4%, slightly ahead of the 0.3% consensus. This suggests underlying consumer demand remains resilient enough to support Q2 GDP growth, even as headline figures disappoint.

Tariffs and Inflation Take a Toll

Behind the numbers lies a story of consumers reacting to mounting price pressures. Year-over-year retail revenues grew 1%, but unit demand fell by the same amount—a clear sign that inflation, not volume, is driving sales. The impact of recent tariff hikes, now averaging 15%, is beginning to filter through to store shelves, particularly in general merchandise and tech categories. Apparel sales were notably weak, though beauty products saw a late-month rebound.

"We're seeing the first real cracks in discretionary spending," said one retail analyst who asked not to be named. "Lower-income shoppers are pulling back first, but if tariffs keep pushing prices up, this could spread."

What Comes Next?

With back-to-school season approaching, retailers face a tricky balancing act. The National Retail Federation still projects 2025 sales growth of 2.7–3.7%, but that optimism may be tested if current trends hold. Some sectors, like home improvement and prestige beauty, continue to outperform, while others brace for further turbulence.

Attempts to reach the White House for comment on how tariff policies might evolve were unsuccessful. Meanwhile, market watchers will scrutinize June data for signs of whether May's slump was a blip or the start of a broader slowdown.