US Retail Sales Drop 0.6% as Consumer Sentiment Falls

United States retail sales fell 0.6% month-over-month in July, the largest decline since May 2025. The result missed expectations of a 0.1% increase, while the Control Group used for GDP calculations dropped 0.4%. Analysts attribute the slump to a calendar shift that moved Prime Day and related promotions to June, a heat wave during the July 4th weekend, and a post-World Cup spending lull. Other factors included lower gasoline prices and fading support from OBBBA tax refunds.

Simultaneously, Joanne Hsu and the University of Michigan reported that consumer sentiment declined in August for the first time in three months, falling to a preliminary index reading of 51 from July's 55.2. Households expressed increasing concern over worsening business conditions and inflation, with expectations that prices will rise 4.3% over the next year. This sentiment downturn was most pronounced among older consumers, lower-income households, and those without college degrees.

Economic pressure is further highlighted by a 0.2% decline in real average hourly earnings in July. While annual retail sales growth remains solid at 5.0%, recent data suggests a shift in behavior, with spending growth now stronger among lower-income households than higher-income households, indicating a waning of previous K-shaped economic dynamics.