Consumer Spending Drops 0.9% in May as Tariff Anxiety and Economic Pressures Force Families to Cut Back

The latest retail sales data reveals a troubling trend that should concern every American family. U.S. retail sales fell 0.9% in May 2025, marking the steepest decline in four months and signaling that consumers are pulling back on spending as economic anxiety takes hold. This sharp drop, worse than economists’ expectations, reflects the real-world impact of policy uncertainty and rising costs on household budgets across the nation.

The Commerce Department’s report, released on June 17, shows that American families are making tough choices about where to spend their hard-earned money. After a brief surge in spending earlier this year driven by consumers rushing to beat potential tariff increases, the economic reality is now setting in. Families are cutting back on everything from cars to groceries, painting a picture of an economy where uncertainty is driving caution.

The Numbers Tell a Stark Story

The May decline follows a revised 0.1% drop in April, creating a concerning two-month streak of falling consumer spending. According to CNN, this represents “the steepest monthly decline since January and worse than the 0.7% decrease economists projected.”

The automotive sector bore the brunt of the decline, with car and auto parts sales plummeting 3.5% in May. This dramatic drop comes just months after consumers rushed to purchase vehicles in March, when sales surged 8.9% as buyers tried to get ahead of anticipated tariffs on imported vehicles.

But the pain wasn’t limited to big-ticket items. Grocery store sales fell 0.7%, while restaurant and bar spending dropped 0.9%. Home improvement stores saw a 2.7% decline, and gasoline station sales fell 2% as energy prices provided some relief at the pump.

The Tariff Effect: From Rush to Retreat

The current spending slowdown directly traces back to the tariff policies implemented earlier this year. When President Trump announced a 25% duty on imported vehicles in April, consumers responded predictably by front-loading their purchases. As Forbes reported, “consumers rushed to make car purchases before President Donald Trump’s tariffs were scheduled to go into effect.”

This created an artificial spike in spending that economists warned was unsustainable. Samuel Tombs, Pantheon Macroeconomics’ lead U.S. economist, indicated that July could see the most pronounced price increases as tariffs continue to ripple through the economy.

The pattern is clear: when families know prices are going up, they spend money they might not have to avoid paying more later. But this borrowing from future spending creates exactly the kind of economic volatility we’re seeing now.

Beyond Cars: Widespread Consumer Caution

While automotive sales drove much of the decline, the breadth of spending cuts reveals deeper concerns about the economic outlook. When families reduce spending on groceries and dining out, it signals genuine financial stress rather than just delayed purchases.

“Consumers are on the sidelines as the job market weakens and Americans grapple with higher prices,” David Russell, global head of market strategy at TradeStation, told analysts. This sentiment reflects what many families are experiencing: wages that aren’t keeping pace with rising costs and uncertainty about future employment prospects.

The restaurant industry’s 0.9% decline is particularly telling. Dining out is often the first expense families cut when money gets tight, making it a reliable indicator of consumer confidence. When people stop going to restaurants, it suggests they’re genuinely worried about their financial future.

Economic Ripple Effects

Consumer spending drives approximately 70% of U.S. economic activity, making these declines significant for the broader economy. Gregory Daco, chief economist at Ernst & Young, warned CNN that “any time you get a pullback in consumer spending, it tends to lead to a slowdown in overall GDP and broader economic activity.”

The concern isn’t just about current spending levels but about the psychological impact of economic uncertainty. According to Reuters, core retail sales, which correspond most closely with GDP calculations, showed even more concerning trends when adjusted for the broader economic picture.

Despite these challenges, the Federal Reserve Bank of Atlanta maintains its forecast of 3.5% GDP growth for the second quarter, though this represents a downward revision from earlier projections of 3.8% growth.

The Human Cost of Policy Uncertainty

Behind these statistics are real families making difficult decisions. The data shows that Americans are becoming more selective with their spending, prioritizing necessities over discretionary purchases. This shift reflects not just current financial pressures but anxiety about what lies ahead.

“While household balance sheets remain healthy, consumers are growing more cautious and increasingly selective with their spending amid lingering policy uncertainty, deteriorating labor market prospects and tariff anxiety,” Lydia Boussour, senior economist at EY-Parthenon, explained to Forbes.

This caution is understandable given the mixed signals in the economy. While unemployment remains relatively low at 4.2%, families are seeing prices rise on everything from groceries to housing. The combination of higher costs and policy uncertainty creates a perfect storm for reduced consumer confidence.

Looking Ahead: What This Means for American Families

The retail sales decline represents more than just economic data; it reflects the real-world impact of policy decisions on American households. When families cut back on spending, it affects everyone from retail workers to restaurant servers to auto dealerships.

The challenge moving forward is breaking the cycle of uncertainty that’s driving consumer caution. Families need predictable policies and stable economic conditions to feel confident about spending. Without that confidence, the economy risks entering a prolonged period of slow growth.

Chris Rupkey, chief economist at Fwdbonds, captured the mood perfectly: “The economy is slowing with consumers nervous about exactly what lies ahead and are choosing to save overall rather than flash some cash at the shops and malls.”

A Call for Economic Leadership

These retail sales figures should serve as a wake-up call for policymakers. When American families start cutting back on basic necessities like groceries, it’s time to reassess the policies driving economic uncertainty.

The solution isn’t complex: families need stable, predictable economic policies that allow them to plan for the future. They need assurance that their jobs are secure and that prices won’t suddenly spike due to policy changes. Most importantly, they need leaders who understand that economic policy isn’t just about numbers on a spreadsheet but about real families trying to make ends meet.

As we move through 2025, the retail sales data will continue to serve as a barometer of American economic confidence. The question is whether policymakers will heed the warning signs and work to restore the stability that families need to feel secure about their economic future.

The American economy’s strength has always come from the confidence and spending power of its families. Protecting that foundation should be every leader’s top priority.