May Retail Sales in Focus as Fed Balances Inflation Risk and Slowing Consumer Demand

May Retail Sales Arrive at a Pivotal Moment for Fed Policy

U.S. May retail sales data hits at 12:30 GMT—just as the Federal Reserve begins its two-day policy meeting. With economic signals increasingly mixed, today’s numbers will help clarify whether slowing consumer activity is a temporary dip or the beginning of a broader retrenchment. Traders are watching the control group closely, as it feeds directly into GDP forecasts.

Control Group the Key as Wall Street Looks for Clarity

Expectations are modest: headline and ex-auto sales are seen rising 0.3%, with the control group also forecast at +0.3%. The control group strips out volatile components like autos, gas, building materials, and restaurants, offering the clearest view of real consumer strength. April’s decline of 0.2% in this category raised concerns that the U.S. consumer may be retreating under pressure.

Tariff-Induced Buying Spree Wears Off in May

March’s surge in vehicle and appliance sales—driven by tariff fears—skewed spending patterns. Consumers rushed to buy big-ticket items ahead of expected price hikes, leading to a 5.3% jump in auto-related sales. But those purchases weren’t repeated. Motor vehicle sales dipped 0.1% in April and are expected to remain weak in May, a drag on overall retail numbers.

Consumers Pull Back on Dining and Discretionary Spending

Receipts at food services and drinking establishments fell 1.5% in April—the sharpest drop since January 2024. This signals tightening household budgets and growing concerns over job security or inflation. Sentiment surveys reflect this shift: personal finances may be improving, but consumer confidence is falling, a combination that usually precedes spending cutbacks.

Fed Constrained as Growth Slows and Inflation Stays Elevated

The Fed remains stuck between slow growth and above-target inflation. Rates are expected to hold at 4.25%–4.50%, with a 99.9% probability priced in via CME’s FedWatch tool. But real consumer spending is projected to slow from 3.1% year-over-year in Q1 to just 1.1% by Q4. With Q1 GDP already down 0.3%, a weak May print could pressure Q2 growth further. The Atlanta Fed currently estimates a 2.1% GDP contraction for the quarter.

Market Forecast: Sideways to Bearish if Sales Miss

Markets may react unevenly. A strong beat (above 0.5%) could reinforce the Fed’s hawkish bias, lifting the dollar and pressuring bonds. In-line data (0.2%–0.4%) likely shifts focus to the Fed’s statement. A miss (below 0.2%) risks renewed volatility across equities, fixed income, and FX. Revisions to April’s data could also move markets independently.

With spending slowing, tariffs distorting behavior, and policy tightening already in place, downside risks remain dominant. Traders should stay flexible and watch closely for control group revisions and Fed tone tomorrow.

More Information in our Economic Calendar.