Misleading drop in retail sales

June 17, 2025

May retail sales dropped -0.9%, missing consensus expectations for -0.7%. That follows a downwardly revised -0.1% in April.

Sales at motor vehicle dealers fell -3.5% in May after slipping -0.6% in April. That accounted for much of the decline in broader retail sales. Purchases earlier in the year ahead of expected tariffs “borrowed" from the future. The decline was in-line with weaker light vehicle sales of 15.6 million at an annualized selling pace, down from 17.3 million in April. Outsized vehicle sales in March of 17.8 million may continue to borrow from future spending.

Sales at sporting goods, hobby, book and music stores rebounded 1.3% after dropping -3% in April. Furniture store sales rose 1.2% in May, now up 8.8% year-over-year. Clothing store sales increased 0.8% after being flat in April.

Sales at building materials, garden equipment and supply dealers lost -2.7%, possibly due to greater-than-normal precipitation across much of the East Coast. Heavy rains and flooding likely suppressed the usual spring ramp-up but could trigger repairs in June.

Discretionary spending at restaurants and bars lost ground. Mobility in areas affected by the adverse weather likely exacerbated losses. Fast food restaurants have reported weaker overall demand as we moved into 2025. The 0.9% drop in spending in May came after a 0.8% jump in April, a month with better weather in terms of mobility. Weather disruptions are hard for restaurants to recoup. 

Gasoline station sales fell -2% despite expected record travel for Memorial Day. Lower gas prices contributed to the decline. Since last year, regular gasoline prices are down 12.2%. Electronic and appliance store sales fell -0.6% after increasing 0.1% in April.

Department store sales fell -0.4% in May after dropping -1.3% the month before. Other general merchandise store sales, which include big-box discounters, edged higher in May. That suggests big-box stores continue to attract high-income households; there has been a notable shift of households earning $100,000 and up showing up at big-box discounters. 

Core retail sales, which exclude eating and drinking places, automobile dealers, gasoline stations and building materials stores, climbed 0.4% in May after slipping -0.1% in April. That suggests that consumer spending, as shown by real personal consumption expenditures (PCE), has remained relatively resilient.

Online sales rose for the fourth month in a row, albeit at a slower pace than in the past, up 0.9% in May. E-commerce sales may be hampered by the removal of the de minimis exemption, which allowed low-value imports to enter the US duty free. Many online stores offered discounts to shore up their cash positions ahead of the bite due to tariffs.