‘It’s not lights out for the economy’: U.S. retail sales drop 0.6% in July

American retail sales unexpectedly fell 0.6% in July, marking the largest decrease since May 2025, according to Commerce Department data. The decline followed a higher-than-expected gain of 0.2% in June. The dip was attributed to the waning impact of government tax refunds, which fueled spending in April and May. Excluding gas station and auto dealer sales, retail sales in July declined by 0.2%.

Gas prices surged to $4.08 per gallon, up from $3.85 a month prior, representing a 92-cent increase from the same time last year. Business at motor vehicle and parts dealers saw a 1.8% drop from a 1.9% increase in June, likely due to auto makers' promotion incentives. Electronics and appliance sales declined by 0.5%, while online sales fell by 2.2% from June, as Amazon's four-day Prime Day event, held earlier than usual, failed to generate the same momentum.

Notably, the lone services category – restaurants – registered a 0.5% increase. U.S. inflation slightly declined in July as gas and grocery prices slipped, though inflation remains higher than before the Iran war. Consumer prices rose 3.4% in July from a year ago, down slightly from 3.5% in June. Despite the recent respite, prices are still rising more quickly than average wages, straining many Americans' ability to afford essentials like groceries, gas, and healthcare.

Economists are closely monitoring how families spend during the back-to-school shopping season, which is the second-largest shopping period for retailers after the winter holidays. Off-price retailers, consumer electronics, and office supply retailers have reported a "strong early start" to the back-to-school season, with Target noting that 95% of school supply prices are at or below last year's levels.

Retailers like Walmart and Target are offering discounts to lure inflation-weary shoppers. Foot traffic at outlet malls has increased due to the World Cup festivities, and more Americans are opting for domestic vacations to save money.