Retail sales unexpectedly fall in July as government tax refunds fade

Americans slashed their spending in July as the impact of government tax refunds waned, according to Commerce Department data. Retail sales dropped 0.6% last month, marking the steepest decline since May 2025, following a revised 0.2% increase in June. The dip was particularly pronounced in the absence of tax refunds, as spending plunged 0.2% when gas stations and auto dealers were excluded from the calculations.

The business of motor vehicle and parts dealers suffered a 1.8% drop, marking a reversal from a 1.9% increase in June, when auto makers' promotional incentives were driving sales. Electronics and appliance sales also fell 0.5%. Online sales declined 2.2% from June as Amazon's four-day Prime Day event earlier than usual failed to sustain momentum.

Despite a dip in inflation, consumer prices still rose 3.4% in July year-over-year, down from 3.5% in June. While inflation has eased, it remains higher than before the Iran conflict and outpaces wage growth, leaving many Americans struggling to afford essentials like groceries, gas, and healthcare. Retailers are keeping a close eye on back-to-school shopping, the second-largest season for sales after the holidays, and are offering discounts to entice budget-conscious consumers.