Retail sales in the United States fell by 0.6% in July, marking the largest decrease since May 2025, according to data released by the Commerce Department. This decline follows a revised gain of 0.2% in June. Economists are expressing concerns regarding consumer spending, which has been a driving force in the economy despite ongoing inflation and rising gasoline prices. The decrease in sales coincides with sluggish job figures reported the previous week, indicating potential economic slowing after a strong first half of the year.
Consumers are facing persistent inflation that has outpaced wage growth, and it is suggested that they may have depleted the tax refunds that previously supported their spending. Notably, spending increased in April and May due to these government tax refunds. While many economists anticipate continued growth in the third quarter, some have adjusted their forecasts downward following the retail sales report.
The report also highlighted a 0.9% drop in sales at gas stations, attributed to lower fuel prices until late July, when tensions in the Strait of Hormuz began to escalate. Gas prices have since increased to $4.08 per gallon, up from $3.85 a month prior, which is significantly higher than the previous year.
Excluding gas stations and auto dealers, retail sales fell by 0.2%. Sales at motor vehicle and parts dealers decreased by 1.8%, while electronics and appliance sales saw a decline of 0.5%. Online sales dropped by 2.2% from June, following a boost from Amazon's Prime Day event. The data does not account for spending in travel and hotel services, but restaurant sales increased by 0.5%.
Heather Long, chief economist at Navy Federal Credit Union, noted signs of consumer fatigue, stating that July retail sales were disappointing across the board. Inflation data released this week indicated a slight decline, with consumer prices rising by 3.4% year-over-year, down from 3.5% in June. Monthly prices increased by 0.1% from June to July, marking the second consecutive decrease after a spike in May.
Economists are monitoring consumer spending closely as the holiday shopping season approaches. Despite steady shopping activity, consumers are becoming more cautious with their spending. Retailers such as Walmart and Target are offering discounts to attract budget-conscious shoppers, with Target reporting that 95% of school supply prices are at or below last year's levels. Retailers are expected to begin reporting quarterly earnings next week.