US retail sales fell in July for the first time in nine months as the boost from big tax refunds faded, suggesting a marked slowdown in consumer spending at the start of the third quarter.
The unexpected decline in retail sales reported by the Commerce Department on Friday was also payback after Amazon pulled forward its Prime Day event to June from July, with other retailers offering competing promotions.
A retreat in gasoline prices also weighed on receipts at service stations.
The report added to unexpected job losses last month and mild inflation readings in bolstering financial market expectations that the Federal Reserve would not raise interest rates in September, barring upward surprises to August price and employment data.
“This points to a material slowdown in real consumer spending growth in the third quarter,” said Sal Guatieri, a senior economist at BMO Capital Markets. “This, together with a weaker jobs report and subdued core CPI inflation, raises the odds of the FOMC staying patient again in September.”
Retail sales dropped 0.6% last month after an unrevised 0.2% gain in June, the Commerce Department’s Census Bureau said.
The decline was the first since last October and was the largest in 14 months.
Economists polled by Reuters had forecast retail sales, which are mostly goods and are not adjusted for inflation, edging up 0.1%.
Estimates ranged from a 0.5% drop to a 0.7% increase.
Retail sales increased 5.0% year-on-year in July.
Consumers are increasingly sensitive to higher prices and are becoming more selective and intentional with their purchases, economists said.
The decline over the month was led by a 2.2% decrease in sales at nonstore retailers. Receipts at motor vehicle and parts dealers tumbled 1.8%.
Sales at electronics and appliance stores fell 0.5% while receipts at service stations dropped 0.9%, reflecting lower gasoline prices.
But sales at clothing stores rebounded 1.9%, likely boosted by back-to-school shopping.
Consumers still eating out
Receipts at food services and drinking places, the only services component in the report, increased 0.5% after rising 0.4% in June.
This category is considered a key measure of household finances.
There were increases in sales at furniture, building material, garden equipment and supplies stores as well as at miscellaneous retailers and health and personal care outlets.
Sales at sporting goods, hobby, musical instrument and book retailers were unchanged. Generous tax refunds this year helped to soften the blow from higher gasoline prices stemming from the Middle East conflict, resulting in robust consumer spending in the second quarter.
Those refunds have been exhausted, economists said. But with a stock market rally boosting household wealth, they did not anticipate a collapse in consumer spending.
The S&P 500 index has risen 14% so far this year after surging 16.4% in 2025.
Economists at PNC Financial said an analysis of bank data showed households in July appeared more sensitive to rising gasoline prices than they were earlier this year, creating what they said was a less supportive backdrop for spending in the second half of the year.
But they said it was “difficult to envision a scenario where spending truly rolls over,” given the rise in household wealth.
They also noted “increasing evidence of upper-income and older households cashing in on wealth gains to support spending.”
Retail sales excluding automobiles, gasoline, building materials and food services fell 0.4% last month after a slightly downwardly revised 0.4% increase in June.
Economists had forecast these so-called core retail sales, which correspond most closely with the consumer spending component of gross domestic product, rising 0.3% after a previously reported 0.5% increase in June.
Consumer spending, which accounts for more than two-thirds of the economy, increased at a 3.2% annualized rate in the second quarter. The economy grew at a 1.5% pace last quarter.