U.S. Retail Sales Fall 0.6% as Consumer Spending Loses Momentum

U.S. retail and food-services sales fell 0.6% in July to a seasonally adjusted $763.6 billion, breaking a nine-month run without a monthly decline and giving investors a weaker reading on household demand at the start of the third quarter. June sales were unrevised at a 0.2% increase.

The pullback was sharper than economists had expected, but it did not amount to a collapse in spending. Sales were still 5.0% above July 2025, and several categories, including restaurants and clothing stores, posted gains. The July report instead points to a more uneven consumer backdrop after a stronger second quarter.

The U.S. Census Bureau released the July figures at 8:30 a.m. ET on August 14. Its advance estimate showed that sales were adjusted for seasonal variation and holiday and trading-day differences, but not for changes in prices. Census put the 90% sampling margin around the monthly change at plus or minus 0.4 percentage point. That distinction matters because retail sales are reported in current dollars, so changes in inflation and gasoline prices can affect the headline even when the quantity of goods purchased moves differently.

Online and auto sales lead the July decline

The biggest drag came from nonstore retailers, a category dominated by online shopping, where sales fell 2.2% from June. Motor vehicle and parts dealers posted a 1.8% decline, while electronics and appliance stores were down 0.5%. Gasoline-station receipts fell 0.9%, a move that can partly reflect lower fuel prices rather than only weaker demand.

Those declines were partly offset elsewhere. Clothing and clothing-accessories stores rose 1.9%, health and personal-care stores gained 0.7%, and food services and drinking places increased 0.5%. Furniture and home-furnishings stores, building-material and garden-equipment dealers, and general-merchandise stores each recorded smaller increases.

Reuters reported that Amazon moved its Prime Day event to June from July this year and that competing retailers also pulled promotions forward, creating a tougher comparison for online sales in July. The news agency also cited the fading effect of large tax refunds as another factor behind the loss of momentum. Still, the broad headline decline was the first since October 2025 and the largest monthly drop in 14 months.

Census data also show that total sales excluding motor vehicles and parts fell 0.3%, while sales excluding both autos and gasoline slipped 0.2%. Retail sales excluding gasoline stations fell 0.6%. Those measures strip out some volatile categories, but they do not all tell the same story, which is why economists often focus on a narrower group that lines up more closely with the goods portion of consumer spending used in GDP calculations.

A key GDP-linked measure also weakened

That so-called control group, which excludes automobiles, gasoline, building materials and food services, fell 0.4% in July, according to Reuters. Economists surveyed by the news organization had expected a 0.3% increase. June’s control-group gain was revised slightly lower to 0.4% from the previously reported 0.5%.

The control-group decline gives the report more weight than a headline drop driven only by gasoline or autos would have carried. It suggests that the softer month extended into categories that feed more directly into estimates of goods consumption, although retail sales are still only one part of the broader consumer-spending picture.

That broader picture had been firmer through the end of the second quarter. The Bureau of Economic Analysis said real GDP grew at a 1.5% annual rate in the April-to-June period, with consumer spending among the contributors to growth and with household spending accelerating from the first quarter. In June alone, current-dollar personal consumption expenditures rose 0.3%, while inflation-adjusted, or real, PCE increased 0.4%.

Retail sales and PCE should not be treated as interchangeable. The Census report is heavily weighted toward goods and includes food services as its main service category, while the BEA’s consumption measure covers the much larger universe of household spending on both goods and services. A weak retail month can therefore signal softer demand without establishing that total consumer spending fell by the same amount.

The latest household-income data also show why the consumer outlook remains mixed rather than uniformly weak. BEA reported that disposable personal income rose 0.2% in June and that the personal saving rate was 2.7%. At the same time, the Federal Reserve’s July Monetary Policy Report said real wage growth had cooled as consumer-price inflation remained elevated, a combination that can leave households more price-sensitive even when employment and asset values continue to support spending.

Retail weakness adds to the Fed’s September calculation

The July sales report arrived as markets were already reassessing the path for U.S. interest rates. Reuters said the weaker retail reading, together with softer inflation data and a weaker labor-market backdrop, reinforced expectations that the Federal Reserve would leave rates unchanged at its September meeting rather than resume increases.

Retail sales alone are unlikely to decide monetary policy. Fed officials will receive another full month of employment and inflation data before the September 15-16 meeting, and the central bank is balancing signs of slower demand against inflation that remains above its 2% objective. Even so, a downside surprise in both headline sales and the control group reduces evidence that consumer demand is reaccelerating after the stronger second quarter.

For investors, the key question is whether July was largely a timing correction after June promotions and tax-refund-supported spending, or the start of a more persistent slowdown. The next major checkpoints arrive quickly. BEA is scheduled to release its second estimate of second-quarter GDP and its July personal income and spending report on August 26. Census is due to publish August retail sales on September 16, the second day of the Fed’s next policy meeting.

A single month does not erase the 5.0% year-over-year rise in retail sales, and restaurants and several store categories continued to grow in July. But the combination of a 0.6% headline decline and a 0.4% drop in the GDP-linked control group makes the report a clear loss of momentum at the start of the third quarter. Whether that weakness persists will determine how much July changes the outlook for growth and interest rates.