U.S. Retail Sales Experience Significant Drop in July

In July, U.S. retail sales experienced a surprising decline of 0.6%, the largest decrease since May 2025. This comes after a revised increase of 0.2% in June, as reported by the Commerce Department. Economists had anticipated a slight rise in sales, especially after April and May saw increased spending, aided by government tax refunds.

Concerns have emerged among economists regarding the potential impact on the economy, given that consumer spending has been a major economic driver. Persistent inflation and rising gasoline prices contribute to these concerns. However, declaring a consumer retreat may be premature. The weak sales report aligns with disappointing job statistics from the previous week, hinting at a potential economic slowdown after a robust first half of the year.

The University of Michigan’s consumer sentiment index revealed increased pessimism about the economy, attributed to high prices. Although many economists still predict solid growth for the July-September quarter, several have lowered their forecasts following the retail sales data.

Gas station sales dropped by 0.9% in July, with prices rising since the end of the month, reaching $4.08 per gallon according to AAA. This marks a significant increase compared to last year. Typically, gas prices decrease in August, aligning with the end of the driving season. However, the current scenario breaks from historical patterns.

Excluding gas stations and car dealerships, July retail sales fell by 0.2%. Motor vehicle and parts dealers experienced a 1.8% reduction, reversing a 1.9% rise in June due to promotions by automakers. Electronics and appliance sales also decreased by 0.5%. Online sales plunged by 2.2% from June, dragged down by spending during Amazon’s Prime Day in June. This decrease significantly impacted the control group, which excludes categories like food services and gas station sales, dropping by 0.4%.

“American consumers are showing signs of fatigue,” wrote Heather Long, chief economist at Navy Federal Credit Union.

Despite the overall decline, some sectors reported gains, including clothing and accessories stores, furniture stores, and building material suppliers. Restaurant sales increased by 0.5% as well.

Bernard Yaros, a lead U.S. economist at Oxford Economics, highlighted the balanced job market and ongoing spending by wealthy households as positive signs for continued economic strength.

July saw a slight decline in inflation, driven by a reduction in gas and grocery prices, though prices remain above pre-Iran war levels. According to the Labor Department, consumer prices rose 3.4% in July from a year earlier, slightly down from June’s 3.5%. Monthly price increases from June to July were minimal at 0.1%.

Economists remain attentive to consumer spending trends post-Christmas. Many Americans have become more cautious, seeking deals and shopping at discounted retailers. Early back-to-school sales have shown strength, with retailers like Walmart and Target offering competitive prices to attract cost-conscious shoppers.

Stephen Yalof, Tanger outlet mall CEO, reported increased foot traffic during the summer, partly due to World Cup events. This trend was driven by Americans opting for local vacations to cut costs. “We’re rewarding with value, and we’re getting customers to come in… and shop more frequently,” Yalof stated.

AP Economics Writer Christopher Rugaber contributed to this report from Washington.