Kiplinger Retail Outlook: Car Buying Splurge Comes to An End

Retail sales fall as car sales retreat. Other non-gas sales are little changed.

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Retail and food service sales, excluding gasoline, dropped 0.8% in May. Motor vehicle sales came back to earth after surging ahead of new tariffs in March and April. There will likely be several slow months for car sales still to come. Excluding motor vehicles and gasoline, retail sales edged down 0.1%. Despite little change in the aggregate total, the components were a mixed bag: Furniture, clothing, sporting goods, miscellaneous items and ecommerce showed good gains, while electronics and appliances, building materials, groceries and restaurant sales dropped.

Restaurant sales declined 0.9% in May after strong growth in March and April. But it is common for this spending to retreat after a period of stronger than normal growth. Spending on services excluding dining rose a moderate 0.3% in April, its slowest growth in nearly two years. (April is the latest month for which services spending data other than dining are available. Data for other services in May will be published at the end of June.)

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Despite the uncertainties caused by tariffs, overall sales are holding up reasonably well at the moment. But weakness may show up later. While price increases related to tariffs have been limited so far, a sharp rise in the household savings rate in April suggests that consumers are concerned. It is likely that price increases could become more prevalent later, as inventories of goods that were stockpiled ahead of the tariffs start to run down.

Consumer sentiment improved a bit in May but remains low because of the uncertainties regarding the White House’s tariff policy and prospects for the overall economy. Spending will also be affected by flattening income growth later because of the slowdown in hiring taking place now.

Finally, even if the unemployment rate does not rise much, just the fear of job losses will likely boost the household savings rate to 6%, from below 4% late last year. More saving means less spending on current consumption: a prudent move for individual consumers during times of uncertainty, but a headwind for the overall economy.

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David Payne
Staff Economist, The Kiplinger Letter

David is both staff economist and reporter for The Kiplinger Letter, overseeing Kiplinger forecasts for the U.S. and world economies. Previously, he was senior principal economist in the Center for Forecasting and Modeling at IHS/GlobalInsight, and an economist in the Chief Economist's Office of the U.S. Department of Commerce. David has co-written weekly reports on economic conditions since 1992, and has forecasted GDP and its components since 1995, beating the Blue Chip Indicators forecasts two-thirds of the time. David is a Certified Business Economist as recognized by the National Association for Business Economics. He has two master's degrees and is ABD in economics from the University of North Carolina at Chapel Hill.