US July Retail Sales Unexpectedly Drop 0.6%, Largest Decline Since May 2025

US July retail sales unexpectedly declined, dropping 0.6% month-on-month—the largest decrease since May 2025 and significantly worse than the market forecast of a 0.1% gain. This suggests consumers temporarily hit the brakes after robust spending in the first half of the year.

In addition to the fading effects of one-time stimulus from large tax refunds, Amazon (AMZN-US) moving its Prime Day sale to June and cooling consumer enthusiasm following the World Cup also contributed to the weaker July figures.

The US Census Bureau of the Department of Commerce released data on Friday (14th), showing that July retail sales decreased 0.6% month-on-month, while June’s figure was revised to remain unchanged at +0.2%. Retail sales primarily reflect goods consumption and are not adjusted for inflation. On a year-over-year basis, July sales still grew 5%, indicating overall consumption has not entered a broad-based downturn.

Five out of 13 retail categories saw sales declines. Online retailers, including Amazon, recorded a sharp 2.2% drop in sales, becoming one of the biggest drags on the overall data. Bank of America (BofA) noted that because Amazon moved Prime Day from July to June this year, other retailers launched competing promotions, pulling forward online shopping demand that would have otherwise occurred in July.

Auto and parts dealers also saw a 1.8% decline in sales, consistent with automakers’ reported lower sales volumes. Gas station revenues dropped due to falling gasoline prices, while apparel and furniture categories also weakened. Analysts believe early-July heatwaves and post-World Cup spending fatigue may have further dampened monthly expenditures.

However, restaurant and bar revenues rose 0.5%, showing resilience in service-sector consumption. Excluding automobiles and gasoline, July retail sales declined 0.2%.

More notably, core retail sales—excluding restaurants, autos, building materials, and gas stations, and closest to GDP goods consumption calculations—fell 0.4% in July, the largest drop since early 2025 and well below the expected 0.3% growth. June’s increase was also revised down from the initially reported 0.5% to 0.4%.

Earlier this year, US consumers received substantial tax refunds, offsetting the impact of higher gasoline prices driven by Middle East conflicts and supporting second-quarter consumer spending growth at a 3.2% annual rate, helping drive 1.5% economic growth during the same period. However, economists point out that this one-time boost has largely been exhausted, and with the June personal savings rate falling to a four-year low, the outlook for second-half consumption faces greater uncertainty.

Credit card spending data from Bank of America and PNC Financial show a clear slowdown in consumption growth in July following the spending surge in June driven by Prime Day and the World Cup. PNC noted that households appear more sensitive to rising gasoline prices now than at the beginning of the year, making the second-half consumption environment less favorable.

Nonetheless, most economists believe the July weakness may be temporary. The S&P 500 Index has already risen 14% this year, and rising stock prices are boosting household wealth, particularly as more high-income and older households convert asset gains into spending. Bank of America also pointed out that household savings remain above pre-pandemic levels, and the share of households paying off credit card balances in full continues to rise.

Spending data also shows that in recent weeks, consumption growth among low-income households has outpaced that of high-income households—even excluding gasoline expenses—suggesting the previous 'K-shaped economy' pattern, where high earners drove spending while lower earners struggled, may be fading. While the fading of tax refund benefits and increased price sensitivity pose risks, economists find it difficult to imagine a true collapse in US consumer spending given ongoing support from stock market wealth effects and solid household financial conditions.