US retail sales fall 0.6% in July: what it means for the economy

US retail sales fell 0.6% in July from the prior month — the steepest monthly decline since May 2025. That followed a 0.2% increase in June. According to the Commerce Department, the spending gains seen in April and May were driven by Americans spending their tax refunds, an effect that had begun to fade by July.

Excluding gas stations and auto dealers, retail sales dipped just 0.2% in July. Part of that was driven by gas prices climbing again: tensions in the Strait of Hormuz pushed the price up from $3.85 to $4.08 a gallon over the month — 92 cents higher than a year earlier.

Sales at auto and parts dealers dropped 1.8%, a reversal from June's 1.9% gain, which had been fueled by manufacturer discount programs. Electronics and appliance sales fell 0.5%, while online sales dropped 2.2% compared with Amazon's four-day Prime Day event in late June.

"This isn't the economy flashing warning lights yet, but if consumers pull back, new risks could emerge," said Christopher Rupkey of financial research firm fwdbonds. Meanwhile, annual inflation came in at 3.4% in July, down slightly from 3.5% in June — though still above the 2.4% reading recorded before tensions with Iran flared up.

Prices are still rising faster than average wages, underscoring the strain many Americans face paying for groceries, fuel, and healthcare. Economists are watching closely to see how the year's second major shopping season — back-to-school spending — plays out. Tanger malls CEO Stephen Yalof said foot traffic rose over the summer thanks to World Cup-related events, as many people opted to vacation closer to home to save money.