US Retail Sales Fall 0.6% in July as Consumer Sentiment Sinks to 51

US consumers pulled back on spending sharply in July, with fresh government data released Friday showing retail sales fell 0.6% from June, the steepest monthly decline since May 2025. The drop caught economists off guard, as forecasts had pointed to a modest gain of roughly 0.1% to 0.2%.

Retail and food services sales totalled $763.6 billion for the month. The pullback was broad-based but uneven: online sales recorded the sharpest fall among categories, down 2.2%, while spending at car dealerships slipped about 2%. Gasoline receipts also declined. In contrast, clothing stores, restaurants, and health and personal care retailers posted gains even as the overall headline number softened.

Economists tracking the report pointed to a mix of factors behind the slowdown. An earlier boost to household spending from large tax refunds appears to have faded, while some June promotional activity is believed to have pulled forward purchases that would otherwise have shown up in July's tally. Falling gasoline prices also weighed on the dollar value of fuel-related sales even where volumes held up.

Consumer Mood Turns Sourer

The retail sales report landed alongside a separate and equally striking signal on household confidence. The University of Michigan's preliminary Consumer Sentiment Index for August came in at 51.0, missing the 54.5 consensus estimate and marking a decline of roughly 7.6% to 8% from July's final reading of 55.2. The drop ended two consecutive months of improving sentiment.

Survey director Joanne Hsu noted that expectations for future business conditions deteriorated sharply, sinking 11% for the short-term outlook and 17% over the longer run. The survey also found that only 8% of consumers now expect their income growth to outpace inflation over the coming year, underscoring persistent unease about the cost of living even as headline inflation readings have moderated from their post-pandemic peaks.

The softening in sentiment was not confined to any single demographic or political group, though the survey found particularly sharp declines among Republican-leaning respondents, older consumers, lower-income households, and those without a college degree. Analysts said the breadth of the decline suggests the anxiety is being driven by shared concerns — chiefly persistent inflation expectations and a cooling labour market — rather than a single event or announcement.

What It Means for the Broader Economy

Taken together, the two reports paint a picture of an economy that is decelerating rather than accelerating, even as headline growth indicators elsewhere, including a record close on the S&P 500 earlier this week, have suggested resilience in financial markets. Inflation expectations for the one-year horizon remain elevated at around 4.1%, a level that continues to complicate the case for further interest rate cuts even as signs of labour market cooling build.

Retailers and consumer-facing companies are likely to watch the coming weeks closely for confirmation of whether July's pullback was a one-off adjustment following the tax-refund-driven spending earlier in the year, or the start of a more sustained slowdown heading into the autumn shopping season. For now, the combination of weaker spending and falling confidence adds a note of caution to an otherwise mixed macroeconomic picture in the world's largest economy.

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