Tariff Shocks Begin to Show — Cooling U.S. Consumer Spending Raises Alarm Bells

TradingKey – New data from the U.S. Department of Commerce shows that retail sales in May fell 0.9% month-on-month , significantly missing market expectations of a -0.6% decline.

[Overview of U.S. Retail Sales YoY, Source: Investing.com]

Core retail sales, excluding automobiles, rose only 0.2% , weaker than expected. This suggests that after the pre-buying surge triggered by the Trump administration’s tariff threats, U.S. consumer spending is clearly slowing down.

The drop was mainly driven by declines in auto sales and gas station revenue. Auto dealers saw a 3.5% drop in sales , the sharpest monthly fall since June 2024. Falling gasoline prices reduced fuel station income, while sectors like home improvement and dining out also experienced significant drops — signaling households are becoming more cautious amid high prices and economic uncertainty.

Although wage growth continues to provide some support for consumer demand, weakening labor market conditions, the resumption of student loan repayments, and declining household savings are gradually eroding Americans’ spending power.

Recent public opinion surveys indicate that a majority of U.S. households have already cut back on discretionary spending — particularly in service sectors such as entertainment and dining — due to concerns about an economic downturn.

Former U.S. Federal Reserve Chair and Treasury Secretary Janet Yellen bluntly stated in a recent interview that although inflation has been trending downward, Trump’s tariffs could push the U.S. inflation rate up to 3% and cost the average American household around $1,000 in annual income.

Analysts note that while the full impact of higher tariffs has not yet fully fed into headline inflation figures, supply chain disruptions and rising corporate costs are already creating structural inflationary pressure . The trajectory of inflation over the coming months will largely depend on whether U.S.-China trade negotiations can yield meaningful progress.

If no breakthrough is reached, both inflation and employment pressures may intensify, posing growing risks to the Fed’s monetary policy outlook and raising concerns about broader economic resilience.