U.S. retail sales drop 0.6% in July as tax refund boost fades

U.S. retail sales unexpectedly fell 0.6% in July, marking the largest monthly decline since May 2025, as the temporary boost from tax refunds faded. The drop was led by a 1.8% decline in vehicle sales and a 2.2% fall in online purchases, according to Commerce Department data released Friday. Excluding gas stations and auto dealers, retail sales slipped 0.2%. The July total reached $763.6 billion, down from June’s revised $768.2 billion. Gas prices rose to an average of $4.08 per gallon, up from $3.85 a month earlier and 92 cents higher than the same period last year, according to AAA. Economists warned that the pullback signals emerging risks if consumer spending continues to wane. Online sales were hit by the end of Amazon’s early Prime Day promotions, which had driven June’s surge. Electronics and appliance sales also declined 0.5%. While inflation eased slightly to 3.4% year-over-year in July from 3.5% in June, prices remain elevated compared to pre-Iran war levels. Wages are not keeping pace, straining household budgets for essentials like groceries and healthcare. Some costs, including airfares, computers, and used cars, continued to climb. Retailers are now eyeing the back-to-school season—typically the second-biggest shopping period after the holidays—as a critical test of consumer resilience. Early discounts from Walmart, Target, and others are drawing shoppers, with Target reporting that 95% of school supply prices are at or below last year’s levels. Foot traffic at outlet malls has also risen due to summer travel trends tied to World Cup events, as more Americans opt for domestic vacations to save money. Analysts and retailers will closely monitor earnings reports next week for broader economic signals.