U.S. retail sales unexpectedly fell 0.6% in July as the earlier lift from large tax refunds faded, gasoline and auto receipts declined and June promotions pulled some spending forward, though economists say rising household wealth could keep consumer demand from weakening substantially.
By yourNEWS Media Newsroom
U.S. consumers pulled back more sharply than expected in July, sending retail sales down 0.6% after several months in which tax refunds and promotional spending had helped support household purchases.
The Commerce Department’s Census Bureau reported Friday that retail sales declined 0.6% last month following an unrevised 0.2% increase in June.
Economists surveyed by Reuters had expected sales to edge up 0.1%. Forecasts ranged from a decline of 0.5% to an increase of 0.7%.
The figures cover spending largely on goods and are not adjusted for inflation.
The July decline followed a second quarter in which consumer spending remained relatively strong despite higher gasoline prices associated with the conflict in the Middle East.
Economists said unusually large tax refunds helped households absorb some of those higher costs earlier in the year and supported broader purchases.
That temporary source of spending power has now largely run its course.
The timing of major retail promotions also distorted the month-to-month comparison.
Amazon shifted its Prime Day event from July to June this year, prompting other retailers to hold competing sales at the same time. That brought some purchases that ordinarily might have occurred in July forward into the previous month.
Lower gasoline prices were another factor.
Because retail-sales statistics measure the dollar value of purchases rather than the volume of goods sold, falling fuel prices reduced receipts at gasoline stations even if consumers purchased similar quantities.
Automakers also reported a decline in vehicle unit sales during July, placing additional pressure on the headline number.
A narrower measure designed to track the portion of retail activity most closely tied to economic growth was also weaker than economists expected.
Retail sales excluding automobiles, gasoline, building materials and food services declined 0.4% in July.
June’s increase in those so-called core retail sales was revised down to 0.4% from the 0.5% initially reported.
Economists had expected core sales to rise 0.3% in July.
The core measure is closely watched because it corresponds more directly with the consumer-spending component used to calculate gross domestic product.
Despite the disappointing July figures, economists generally do not yet view the decline as evidence that American consumers are entering a sustained contraction.
A substantial rally in financial markets has increased household wealth, particularly among Americans who own stocks.
The S&P 500 has risen approximately 14% this year.
That appreciation has helped offset some of the pressure created by higher prices and the fading benefit from tax refunds, although the gains are not distributed evenly across households.
Economists at PNC Financial said bank-account data suggested consumers became more sensitive to elevated gasoline prices in July than they had been earlier in the year.
That could create a less favorable environment for spending during the second half of 2026, particularly for households with fewer financial assets and less discretionary income.
Even so, PNC economists said it was “difficult to envision a scenario where spending truly rolls over” because rising household wealth continues to provide support.
“We see increasing evidence of upper-income and older households cashing in on wealth gains to support spending,” they wrote.
The split between consumers benefiting from investment gains and those more exposed to everyday price increases could become increasingly important for the economic outlook.
Stock-market appreciation disproportionately benefits households with substantial financial assets, while higher gasoline, food and other recurring expenses consume a larger share of income for households with tighter budgets.
The July report therefore presents a mixed picture.
Consumers bought less at retailers overall, and the weakness extended beyond automobiles and gasoline into the core measure of sales.
At the same time, economists identified several temporary factors behind the decline, including the exhaustion of tax-refund money and the movement of major online promotions into June.
Broader economic data also show that consumers entered the second half of the year following a strong quarter.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased at a 3.2% annualized rate during the second quarter.
Overall gross domestic product expanded at a 1.5% annualized rate during the same period.
That means household spending grew substantially faster than the economy as a whole during the quarter.
The question heading into the remainder of 2026 is whether July represents a temporary pause after unusually strong spending or the beginning of a broader slowdown as consumers encounter higher prices without the benefit of large tax refunds.
For now, economists pointing to rising equity values and household wealth expect consumer spending to remain resilient, although the July numbers suggest shoppers are becoming more selective and increasingly sensitive to price pressures.
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