US Retail Sales Drop 0.6% in July, First Decline in Nine Months

Quick Facts

US retail sales fell 0.6% in July to $763.6 billion, the steepest monthly drop since May 2025.
Nonstore retailers, which include online shopping, declined 2.2% from June, while motor vehicle dealers dropped 1.8%.
Goldman Sachs cut its Q3 GDP growth forecast by 0.5 percentage point to 2.2% following the report.

US retail sales posted their first monthly decline in nine months in July, according to advance estimates released August 14 by the US Census Bureau. Total seasonally adjusted retail and food services sales came in at $763.6 billion, down from a revised $768.1 billion in June. Forecasters had expected a modest gain of 0.1% to 0.2%.

The drop ends a streak that carried spending higher through the first half of 2026, fueled in part by large tax refunds. Year-over-year growth also decelerated sharply, falling from 7.3% in May to 5.0% in July.

Nonstore retailers, a category that captures most online shopping, led the pullback with a 2.2% month-over-month decline. Motor vehicle and parts dealers fell 1.8%. Gasoline stations dropped 0.9%, and electronics and appliance stores slipped 0.5%.

Not every category weakened. Clothing and accessories stores rose 1.9%, likely driven by back-to-school purchases. Health and personal care stores gained 0.7%, and food services and drinking places edged up 0.5%.

The retail control group, which feeds directly into GDP calculations and strips out autos, gasoline, building materials, and food services, fell 0.4% in July. Analysts had forecast a 0.3% gain. Prior readings for May and June were also revised downward.

Economists React

Nationwide Chief Economist Kathy Bostjancic called the report a sign that consumers took a breather after heavy first-half spending. “The contraction in core retail control spending last month, following downward revisions to the prior two months, translates into a bit less momentum for real consumer spending starting Q3 than previously expected,” she said.

Sal Guatieri, Senior Economist at BMO Capital Markets, was more direct. “This points to a material slowdown in real consumer spending growth in the third quarter,” he said.

Carl Weinberg, Chief Economist at High Frequency Economics, pointed to sentiment as a driver. “Consumers are quite unhappy by historical standards,” he said. “Unhappy consumers buy less than happy consumers.”

GDP Forecasts Cut

Goldman Sachs trimmed its Q3 GDP growth estimate by 0.5 percentage point to a 2.2% annualized rate. Several economists now project consumer spending growth could slow to below 2% annualized in the third quarter, down from 3.2% in the April-June quarter.

One potential offset: business inventory restocking. Inventories have been drawn down for five consecutive quarters, and Oxford Economics Lead US Economist Bernard Yaros said inventory investment could provide a partial boost to current-quarter GDP.

Fed Rate Policy in Focus

The weak retail data, combined with moderating inflation readings, reduces pressure on the Federal Reserve to raise rates in September. Ellen Zentner, Chief Economic Strategist at Morgan Stanley Wealth Management, wrote in a Friday analyst note that markets may welcome the data because it strengthens the case for avoiding rate hikes.

Chris Zaccarelli, Chief Investment Officer at Northlight Asset Management, framed the stakes clearly. “The economy is highly dependent on consumer spending, close to 70% of GDP can be traced back to it,” he said. “Too big a slowdown, and especially too prolonged a slowdown, could end up hurting corporate profits and, in turn, the stock market.”

EY-Parthenon economists said they do not expect an outright pullback in consumption, but warned that the strong spending pace from spring is unlikely to hold. Retailers heading into the back half of 2026 face a consumer base that is growing more selective after front-loading purchases earlier in the year.