U.S. retail sales fell 0.6% in July, marking the first decline in nine months. This contraction is a sharp shift from recent trends and follows the exhaustion of tax refunds that supported spending earlier in the year. Core retail sales, which exclude volatile sectors like autos and gas, also dropped by 0.4%. These figures indicate that households are feeling the pressure of sustained inflation and a cooling economy.
The decline was broad across various sectors. Nonstore retailers experienced a 2.2% drop, while sales at motor vehicle dealers fell by 1.8%. Lower gasoline prices also dragged down receipts at service stations. Economists noted that the pull-forward of Amazon Prime Day from July to June contributed to the monthly decrease, as shoppers completed their major purchases earlier than usual.
Alongside the retail data, consumer sentiment fell to 51.0 in August, down from 55.2 in July. This drop in confidence spans all political affiliations and suggests that consumers are pulling back on discretionary spending. High gasoline prices and the overall cost of living remain primary drivers for this cautious behavior, despite a recent rally in the stock market providing some relief for older and upper-income households.
Market expectations for Federal Reserve interest rate policy have shifted in light of these reports. Investors now assign a much lower probability to a rate hike at the September meeting. With consumer spending accounting for more than two-thirds of the U.S. economy, the slowdown has prompted several analysts to lower their GDP growth forecasts for the third quarter. Businesses are currently looking to replenish depleted inventories, which may provide a small cushion for growth in the coming months.