Key facts
- U.S. retail sales decreased by 0.6% in July.
- Economists had predicted a 0.1% rise in retail sales.
- Core retail sales, excluding volatile items, fell 0.4%.
- Consumer spending is a significant driver of the U.S. economy.
U.S. retail sales unexpectedly declined by 0.6% in July, missing economists' expectations of a 0.1% increase. This downturn follows a revised 0.2% gain in June and is attributed to the exhaustion of tax refunds that had previously supported consumer spending, as well as the pull-forward of Amazon's Prime Day event to June. Falling gasoline prices and reduced auto sales also contributed to the decline.
Core retail sales, which exclude automobiles, gasoline, building materials, and food services, also fell by 0.4% in July, contrary to economists' predictions of a 0.3% rise. This metric is closely watched as it aligns with the consumer spending component of gross domestic product.
Despite the July weakness, economists believe consumer spending will likely remain supported by increased household wealth stemming from a 14% rise in the S&P 500 index this year. However, analysis from PNC Financial suggests households are becoming more sensitive to rising prices, although they find it difficult to envision a significant spending rollover given wealth gains.