US retail sales unexpectedly fall in July

The Commerce Department reported that US retail sales unexpectedly declined by 0.6% in July, following a strong start to the year driven by large tax refunds. This decline came after an initial 0.2% gain in June, which economists had predicted would increase by just 0.1%. The tax refunds, which were more generous than initially anticipated, helped cushion the impact of higher petrol prices resulting from the Middle East conflict.

However, those tax refunds have now expired, leading to a decline in retail sales. The drop in sales was also attributed to Amazon pulling its Prime Day event from July to June, while other retailers offered competing promotions. Additionally, petrol prices decreased in July, negatively affecting sales at service stations. Auto manufacturers also reported a decline in vehicle sales.

Despite these challenges, economists believe that the weakness in retail sales is likely temporary, given the continued rise in household wealth from the stock market. The S&P 500 index has risen by 14% in 2026. However, households are now more sensitive to rising petrol prices than they were earlier in the year, which could create a less supportive environment for spending in the latter half of the year.

While it may be difficult to predict a significant reversal in spending, recent evidence suggests that wealthier individuals and older households are using their stock market gains to support their spending. Retail sales, excluding automobiles, petrol, building materials, and food services, fell by 0.4% in July, following a downwardly revised 0.4% increase in June.

Economists had forecast core retail sales, which closely align with the consumer spending component of GDP, to rise by 0.3% after a previously reported 0.5% increase in June.