American consumers continued to power the economy in May, with retail and food service sales rising 0.9% from April to $763.7 billion, nearly double the 0.5% gain economists had forecast. The advance estimate released by the U.S. Census Bureau marks the eighth consecutive month of growth and arrives just hours before Federal Reserve Chair Kevin Warsh delivers his first interest rate decision.
Headline Numbers Top Expectations
Total retail sales climbed 6.9% from May 2025 on an unadjusted basis, with retail trade alone up 7.5% year over year. The surprisingly strong print easily cleared the 0.4% gain logged in April and well exceeded Wall Street's consensus 0.5% estimate. Nonstore retailers, a proxy for e-commerce activity, surged 12.2% from a year earlier, reinforcing the durability of digital channel growth.
Stripping out the volatile auto and gasoline categories, the CNBC/NRF Retail Monitor showed core sales rising 0.42% month over month and 7.19% year over year. The narrower "control group" reading — excluding restaurants, auto dealers and gas stations — gained 0.39% on the month and 6.98% from a year ago, signaling that goods spending remains broad-based.
Resilience Despite Headwinds
The data lands against a backdrop of elevated headline inflation, with May CPI printing at 4.2% annually, ongoing Middle East tensions, and tariff-driven cost pressures rippling through supply chains.
"Retail sales maintained momentum in May, driven by a resilient labor market and consumers' continued willingness to spend on retail goods despite pressure from elevated gas prices, tariffs and the conflict in the Middle East," said National Retail Federation President and CEO Matthew Shay.
Shay also flagged a subtle shift in shopper behavior. "As support from this year's large tax refunds fades, consumers are prioritizing essentials and finding creative ways to stretch their household budgets," he noted, adding that retailers are "actively engaging their supply chains and supplier networks to keep prices affordable."
Markets React Ahead of FOMC
The robust print reinforced the view of a still-firm U.S. economy and complicated the Fed's near-term path. Treasury yields ticked higher across the curve as traders digested data suggesting consumer demand is far from cracking. Yields on policy-sensitive two-year notes have surged to their highest level in more than a year, with futures markets now pricing in at least one quarter-point rate hike as soon as October.
Equities held gains in early trading, with the S&P 500 edging up 0.10%, the Dow Jones Industrial Average adding 0.15% and the Nasdaq Composite rising 0.34%. The Russell 2000 lagged, slipping 0.87% as small-caps remained sensitive to the higher-rate backdrop.
Markets are pricing in a 97% probability that the FOMC leaves the federal funds rate unchanged at 3.75% when Warsh wraps his first policy meeting later today. The retail data may further entrench that hold while pushing back any easing into 2027.
What's Next for the Consumer
The May report extends an unusually long streak of consumer resilience, even as wage gains slow and household savings rates remain pressured. Shay framed the broader picture optimistically: "Consumer spending was a steady and reliable engine of growth in 2025. We expect that consumer resilience to continue into 2026, with household spending once again serving as a pillar of economic support."
For retirement savers and equity investors, the data cuts both ways. Strong consumer activity supports corporate earnings and labor market strength — both tailwinds for 401(k) balances. But persistently firm demand also reduces the Fed's room to cut, keeping borrowing costs elevated and pressuring rate-sensitive sectors. Today's Warsh-led FOMC statement and press conference will be the next test of how the new Chair reads the mix of sticky inflation, hot consumer data and global instability.
Sources: U.S. Census Bureau Advance Monthly Retail Trade Report, National Retail Federation / CNBC-NRF Retail Monitor, CNBC, Bloomberg, Charles Schwab Market Update, TheStreet