Wall Street on edge after key economic indicator drops

America's retail sugar rush just hit a crash. Shoppers tapped the brakes in May, dragging national retail sales down more than expected as the post-tariff frenzy cooled off and auto purchases stalled. According to new data from the Commerce Department, in-store sales dipped 0.9 percent last month — a 0.2 percent steeper slide than economists had forecast. It followed a downwardly revised 0.1 percent decline in April.

'Overall retail sales saw their largest dip in more than a year,' Bret Kenwell, a US investment analyst at eToro, told DailyMail.com. 'Even though economists were expecting a dip, the larger-than-expected decline could have investors feeling a bit less optimistic about the health of the consumer — especially as last month’s figure was revised lower, too.' The drop was driven largely by a slowdown in car sales.

For months, buyers raced to lock in new vehicles ahead of President Donald Trump’s 25 percent automotive tariffs, which took effect in April. For months, shoppers had been ripping new vehicles off dealership lots to beat out cost increases from President Donald Trump's 25 percent automotive tariffs. But in May, that national rush turned into a whimper.

But that early-year blitz appears to have fizzled, with a 19 percent decline. 'But even when excluding auto and gas, retail sales slipped 0.1 percent, while economists were expecting a 0.3 percent gain,' Kenwell added. Outside of car dealerships, sales were also hurt by falling gas prices, with service station revenue dipping in tandem. Cooler-than-usual weather didn't help foot traffic, either.

Federal Reserve officials prepared to start a two-day policy meeting on Tuesday. The U.S. central bank was expected to keep its benchmark overnight interest rate unchanged in the 4.25%-4.50% range while policymakers monitor the economic impact of tariffs and tensions in the Middle East. A 25% duty on imported motor vehicles and trucks came into effect in April.

Retail sales excluding automobiles, gasoline, building materials and food services increased 0.4% in May after an upwardly revised 0.1% fall in April. These so-called core retail sales, which correspond most closely with the consumer spending component of gross domestic product, were previously reported to have dropped 0.2% in April. Consumer spending, which accounts for more than two-thirds of the, economy slowed sharply in the first quarter, and could remain moderate in the April-June quarter.

The Atlanta Fed is currently forecasting GDP rebounding at a 3.8% annualized rate in the second quarter. The anticipated surge will largely reflect a reversal in imports, which have fallen sharply as the frontloading of goods fizzled. The economy contracted at a 0.2% pace in the January-March quarter.

Downside risks to consumer spending are rising. The labor market is slowing, student loan repayments have resumed for millions of Americans and household wealth has been eroded amid tariff-induced stock market volatility. The uncertain economic environment could lead to precautionary saving.

"Past experience suggests the biggest price rises will come in July, though the full impact of the tariffs likely will emerge across the whole of the remainder of the year," said Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics. "That will weigh on growth in real incomes at the same time as a softening labor market will make people cautious with discretionary spending. Meanwhile, households no longer have 'excess savings' or strong growth in stock prices to spur them to spend."