U.S. retail sales rose in July in a broad-based advance, and the prior month was revised higher, though economists were cautious on the trend going forward given a softening jobs market and weaker consumer sentiment. Nine out of 13 categories posted increases, led by the biggest gain in motor vehicle sales since March. Sales at online retailers and general merchandise stores advanced, likely boosted by campaigns including Amazon.com Inc.’s extended Prime Day, Walmart Inc.’s weeklong “Deals” event, and a similar promotion at Target Corp.
When not adjusted for inflation, the value of retail purchases increased 0.5 percent after an upwardly revised 0.9 percent gain in June, Commerce Department data showed today. Excluding cars, sales climbed 0.3 percent.
Today’s report implies a much better start to consumer spending in the second half of the year after uncertainty around President Donald Trump’s policies—chief among them tariffs—took a toll on consumer sentiment and kept many shoppers on the sidelines in the preceding months. While the labor market is shifting into a lower gear, additional clarity on trade policy and a rebound in the stock market are giving some consumers more confidence about their spending power.
However, a report later today showed U.S. consumer sentiment unexpectedly fell earlier this month. That speaks to concerns questioning the durability of the retail data going forward, especially given signs of caution elsewhere and a pullback in discretionary spending, said Wells Fargo & Co. economist Shannon Seery Grein. “When you take that in light of continued tariff uncertainty and just the jobs data that we’ve gotten of late, I do think that a softer consumer trend is probably most likely in the second half of the year,” she said.
Federal Reserve officials are closely tracking consumer spending—which supports two-thirds of U.S. economic activity—as they assess the trajectory of monetary policy. Though they have so far held interest rates steady this year until they have a better sense of how tariffs will impact prices, several policymakers seem inclined to resume rate cuts in the coming months to ensure the labor market and the broader economy remain healthy.
| Metric | Actual | Estimate |
|---|---|---|
| Retail sales (month-over-month) | +0.5% | +0.6% |
| Sales excluding autos (month-over-month) | +0.3% | +0.3% |
| ‘Control group’ sales (month-over-month) | +0.5% | +0.4% |
The retail sales report showed so-called “control-group sales”—which feed into the government’s calculation of goods spending for gross domestic product (GDP)—advanced 0.5 percent in July after an upward revision to the prior month. The measure excludes food services, auto dealers, building materials stores, and gas stations. Several categories that posted solid gains—such as furniture, sporting goods, and cars—also saw some price increases during the month. Because the data aren’t inflation-adjusted, an advance could reflect the impact of higher prices.
Spending at restaurants and bars, the only service-sector category in the retail report, fell by the most since February. That doesn’t bode well for discretionary services spending at the start of the third quarter, said Oscar Munoz, chief U.S. macro strategist at TD Securities. “Services spending overall is the most important segment when gauging the state of the U.S. consumer,” Munoz said. “So even though retail sales were for the most part okay in July, it doesn’t tell us much about the overall health of the U.S. consumer yet.”
The retail sales figures largely reflect purchases of goods, which comprise roughly a third of overall consumer outlays. Inflation-adjusted spending data on goods and services for July will be released later this month.
What Bloomberg economists say...“July retail sales rose on strong online and auto spending. But consumers cut back at food service and drinking places, the only services category in the report. We think this signals that households facing slower disposable income growth opted to shift purchases toward essential goods and away from discretionary items last month.”— Estelle Ou & Eliza Winger |
Inflation reports earlier this week suggested companies didn’t pass along tariff-related costs to consumers in July as much as feared, but a big pickup in wholesale margins suggests that Americans could soon bear the brunt more meaningfully. The sentiment data, published by the University of Michigan, also showed inflation expectations rose on lingering anxiety about the impact of tariffs.
Another report showed the cost of imported consumer goods rose last month by the most since early 2024, including higher prices for apparel, footwear and household goods. That was followed by separate data showing U.S. industrial production declined in July, restrained by tepid output among manufacturers.
Looking ahead, other challenges facing the U.S. consumer—including higher debt levels, the resumption of student loan payments, and lower savings—could also take a toll on spending. And after months of chaotic threats and reversals, higher tariff rates for almost all countries began last week, which may keep pressure on inflation readings going forward.
————————————————————
Copyright 2025 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.