Recent economic data highlights growing signs of consumer caution, as retail sales across the United States posted a notable decline in May. The headline figures reveal a broad-based slowdown, raising questions about the resilience of consumer spending amid evolving economic headwinds.

Retail Sales Dip Sharply in May

Retail sales, a key measure of consumer spending, fell by 0.9% in May on a month-over-month basis. This drop was significantly worse than expected, as economists had forecast a more modest decline. The previous month’s reading was a slight 0.1% gain, which makes the latest downturn more striking.

Excluding the typically volatile auto sector, retail sales fell 0.3%, undershooting expectations that called for modest growth. When gasoline and auto sales are both stripped out—a metric often used to assess core consumer spending—sales decreased by 0.1%, another miss against forecasts of a 0.3% rise.

Control Group Surprises to the Upside

Despite the widespread softness, one bright spot emerged. The retail sales control group, which feeds directly into GDP calculations and excludes categories like auto dealers, gas stations, and building materials, rose 0.4%. This was slightly above expectations and marked a recovery from the previous month’s 0.2% decline. While the control group data may offer some reassurance about the underlying strength of consumption, the overall trend still suggests caution.

Trade Prices Signal Mixed Trends

Meanwhile, price pressures in international trade showed a mixed picture in May. Import prices were flat for the month, defying expectations for a slight decline. Stripping out petroleum, import prices actually rose 0.2%, hinting at persistent price pressures in non-energy goods. On an annual basis, import prices edged up 0.2%, a modest increase but one that still suggests inflation is not fully retreating in the trade sector.

Export prices, however, told a different story. They fell sharply by 0.9% in May, far more than expected. The year-over-year rise in export prices slowed to 1.7%, down from 2.0% the prior month and well below the consensus forecast. This deceleration could reflect softening demand for U.S. goods abroad or easing input costs for exporters.

New York Fed Services Activity Remains in Contraction

Looking at regional economic activity, the New York Federal Reserve’s Services Business Activity Index remained in negative territory in June, although it did improve slightly from the previous month. The index climbed to -13.2 from -16.2, indicating that service sector firms in the region are still facing contraction, albeit at a slightly slower pace.

What It Means for the Broader Economy

Together, these data points paint a picture of an economy in transition. Consumer spending, which has been a key pillar of economic resilience, appears to be losing steam, particularly in discretionary categories. The mixed signals from trade prices add to the uncertainty, while continued weakness in regional service activity may reflect growing concerns among businesses.

For policymakers and investors, these trends warrant close attention. While inflation may be easing in some areas, the slowdown in consumer momentum could pose new challenges for economic growth in the second half of the year. As always, the next few months of data will be critical in determining whether this is a temporary pause or the beginning of a more sustained deceleration.