Back-to-back declines for overall Retail Sales, core spending ok

Summary

A 3.5% drop in sales at auto dealers pulled overall retail sales into negative territory in May, and a downward revision reversed a modest April gain to a modest decline. Control group sales eked out a scant gain of 0.4%, but with half the store types reporting declines, retailers are struggling.

Sales were half good

In a world where financial markets are trying to weigh the impact of tariffs, retail sales have taken on greater importance. Today's report for May is not a terribly encouraging report card in terms of how spending is holding up amid tariffs. Overall retail sales fell 0.9% in May, and last month's scant gain of 0.1% was flipped to a scant decline of 0.1%.

The two biggest categories are autos and e-commerce. Auto dealers have now seen falling sales in four out of the first five months of the year. A pop in March was solid with a 5.3% monthly increase that was largely attributed to people getting the biggest of big-ticket purchases done ahead of the tariffs. But in the wake of that excitement, sales activity on dealer lots has slowed now in back-to-back months. The May decline of 3.5% marks the biggest monthly decline of 2025 so far.

For 20 years, e-commerce has been taking share from general merchandise stores and other brick & mortar retailers, that gained momentum during the pandemic, and so far e-commerce appears to be benefiting from the trade war, at least at this early stage. The category posted increased sales for the fourth straight month, this time a 0.9% gain, and is up 8.3% over the past year.

To be fair, retail sales are not entirely composed of goods categories: bars & restaurants together comprise the third-largest category of spending. It would be difficult to identify a better example of discretionary spending than going out to eat, but perhaps because it is an affordable luxury it had been holding up. After posting the largest overall increase in last month's report, May saw some slowing in sales activity at bars & restaurants with spending down 0.9% for the month, the largest monthly decline for this usually solid category since February 2023.

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