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US retail sales post biggest drop of 2025 as tariffs and economic worries bite
US retail sales fell 0.9 per cent in May — worse than the economists' expectation of a 0.6 per cent fall. This is
This was the sharpest monthly decline in retail sales since January and the second consecutive decline after sales fell 0.1 per cent in April.
The retail sales decline is one of the many adverse markers that economist and business leaders interpret as a sign of incoming troubles.
The adverse markers have emerged at a time when US President Donald Trump's trade policies, primarily driven by tariffs, have sown uncertainty in global trade and have plunged the United States into fears of inflation — or something worse known as 'stagflation' in which inflationary and recessionary pressures coexist.
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Industrial production falls, home-builder sentiment lowest since 2022
Beside retail sales decline, industrial production fell 0.2 per cent in May for the second time in three months. The fall in industrial production is a sign that the uptick in economic activity in the first quarter is now over.
The 0.2 per cent decline was more than 0.1 per cent forecast by economists in a survey conducted by Wall Street Journal.
The NAHB/Wells Fargo Housing Market Index, which measures home-builder confidence, fell to the lowest since 2022.
In retail sales as well as industrial production, automobile sector was the only promising sector. Manufacturing rose 0.1 per cent in May compared to 0.5 per cent contraction the previous month on the back of a jump in automobile production. Excluding automobiles, manufacturing fell 0.3 per cent.
Trump's tariffs are doing little to support investment in domestic manufacturing capacity by making foreign-produced goods less competitive, said Samuel Tombs, the Chief US Economist at Pantheon Macroeconomics, to MarketWatch.
Foreign companies may also be hesitant to source US-manufactured goods out of concern that their governments may impose new tariffs if the trade war intensifies, Tombs further said.
In May, vehicles and parts output increased 4.9 per cent.
Retail sales fell 0.3 per cent excluding automobiles. This was worse than the estimate of 0.1 per cent again.
'Americans bought cars in March ahead of tariffs and stayed away from car dealerships in May. Families are wary of higher prices and are being a lot more selective with where they spend their money. People are hunting for deals and aren't eager to buy unless they see a good one,' said Heather Long, the Chief Economist at Navy Federal Credit Union, told CNBC.
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Grim forecasts for second half — thanks to tariffs
In the midst of such markers, economists and business leaders have warned it is about to get worse.
Sal Guatieri, a senior economist at BMO Capital Markets, said, 'Trade-war uncertainty, rising input prices, and slowing US and global demand are expected to weigh on manufacturing activity this year. We are forecasting a large pullback in business-equipment spending in the second quarter following a first-quarter surge.'
Sam Bullard, senior economist at Wells Fargo, said the outlook for industrial production over the rest of the year 'is dim, as slowing economic growth and the strains of tariffs lead to quarterly declines over the final three quarters of 2025'.
Michael Pearce, the Deputy Chief Economist at Oxford Economics, told Reuters, 'Tariff announcements have had a clear impact on the timing of large-ticket purchases, notably autos, but there are few signs yet that tariffs are leading to a general pullback in consumer spending. We expect a more marked slowdown to take hold in the second half of the year, as tariffs begin to weigh on real disposable incomes.'
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The weakening of US dollar as a result of loss of confidence in the currency because of Trump's trade policies, is a sign 'that inflation will pick up this summer and into the fall as prices start to reflect the higher costs for goods from enacted tariffs' Ben Ayers, a senior economist at Nationwide, told the news agency.
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