US retail sales slip more than expected after rush to beat tariffs

US retail sales declined more than expected in May, government data showed Tuesday, dragged by a slowdown in auto sales as consumers pulled back after hurrying to get ahead of President Donald Trump's sweeping tariffs.

As Trump's levies flow through the country, analysts are keeping a close watch on how consumers -- a critical driver of the world's biggest economy -- respond to resulting uncertainty and any price increases down the line.

Last month, overall sales fell by 0.9 percent from April to $715.4 billion, according to data released by the Department of Commerce.

It was the largest decline since the start of the year, and bigger than the 0.6 percent drop expected by a Briefing.com consensus forecast.

From a year ago, retail sales were up 3.3 percent, still a slowdown from the 5.0 percent rate in April.

Analysts said consumers had likely brought forward major purchases in anticipation of Trump's tariffs -- the president imposed a sweeping 10 percent levy on almost all US partners in April.

Trump also separately slapped tariffs on imports of steel, aluminum and automobiles, fueling concern that this would push inflation up in the coming months.

Excluding autos and parts, retail sales in May were still 0.3 percent down from the prior month.

Sales at motor vehicle and parts dealers slumped 3.5 percent on-month, while those at restaurants and bars fell 0.9 percent.

Declines in spending were also seen at electronics and appliance stores, as well as at grocery stores.

Sales at gas stations fell 2.0 percent from the prior month, the report said.

"Further weakness in sales volumes probably lies in store, as more of the tariff-related increase in costs is passed onto consumers, weighing on real incomes," said Pantheon Macroeconomics in a recent note.

Economists expect it will take a few months for the effects of new tariffs to show up in consumer costs -- and all eyes are on economic data during the summer.

For now, a key question is how a weaker-than-expected retail sales report might influence the Federal Reserve's deliberations as the central bank gathers for its two-day policy meeting Tuesday.

The Fed has been cautious when it comes to lowering interest rates further, with policymakers watching for the effects of tariffs on prices and the jobs market before acting further.

The bank is widely expected to keep rates unchanged for a fourth straight meeting, while releasing its economic projections on Wednesday afternoon.

Source: AFP