Core retail sales, excluding autos, gasoline, building materials, and food services, fell 0.4% in July, a stark reversal from economists' forecasts for a 0.3% rise. This decline follows a downward revision of June's figure, signaling a deepening squeeze on working-class households.
Overall retail sales dropped 0.6% last month, marking the largest decrease since May 2025. This downturn comes after temporary spending bumps in April and May, fueled by government tax refunds that provided a brief reprieve for consumers.
The Burden on Labor
The Commerce Department's data, released Friday, raised concerns among some economists about consumer resilience. Heather Long, chief economist at Navy Federal Credit Union, stated plainly, "American consumers are showing signs of fatigue," adding that "July retail sales were disappointing on all levels."
This weak sales report follows unexpectedly sluggish jobs figures from last week. Both indicators suggest a slowing economy after a period of strong consumer and business spending in the first half of the current year. Consumers also turned more pessimistic about the economy this month, a sentiment likely driven by stubbornly high prices, according to the University of Michigan's consumer sentiment index.
Prices in July were not adjusted for inflation, and the figures were significantly affected by falling sales at gas stations, which saw a 0.9% drop last month. Gas prices, however, began to rise later in July, climbing as evidence of a stalemate between the U.S. and Iran in the Strait of Hormuz grew.
Gas prices have continued their ascent since the final week of July, ticking higher overnight to $4.08 per gallon, up from $3.85 a month ago, according to AAA. This represents a 92-cent increase per gallon compared to last year at this time, a cost AAA described as unprecedented for this late in the year.
Capital's Contradictions
Excluding sales at gas stations and auto dealers, retail sales in July fell 0.2%. Business at motor vehicle and parts dealers declined 1.8%, reversing a 1.9% increase in June that had been propped up by automakers' promotion incentives. Electronics and appliance sales also saw a 0.5% decrease.
Online sales plummeted 2.2% from June, when they were artificially inflated by spending around Amazon's four-day Prime Day event. This drop in online sales heavily impacted the control group, which excludes food services, autos, building materials, and gas station sales, and is used to calculate economic growth; that figure fell 0.4% last month.
Despite the widespread declines, certain sectors managed gains. Clothing and accessories stores, furniture and home furnishing stores, and building material and garden supplies merchants all posted increases. Restaurants, the lone services category in the report, rose 0.5%.
Corporate executives, ever keen to maintain profit margins, are pushing discounts. Elizabeth Lafontaine, director of research at Placer.ai, noted that off-price retailers, consumer electronics, and office supply retailers had a "strong early start" to the back-to-school season, as "Consumers have looked to take advantage of early deals to check off their lists." Target, for example, claims 95% of its school supply prices are at or below last year's levels.
Stephen Yalof, CEO of outlet mall operator Tanger, reported increased foot traffic this summer. He attributed this to World Cup festivities and more people vacationing close to home to save money, stating, "We’re rewarding with value, and we’re getting customers to come in … and shop more frequently." Meanwhile, wealthy households, boosted by strong gains in the stock market, continue to spend, highlighting the stark class divide in economic resilience.
Bernard Yaros, lead U.S. economist at Oxford Economics, maintained that the job market is "broadly balanced," despite acknowledging that the latest numbers warrant a downgrade to spending forecasts. This perspective minimizes the material struggles faced by the majority, whose wages fail to keep pace with rising costs and geopolitical pressures.