US Retail Sales Slip in July as Tax Refund Boost Fades (2026-08-14)

US retail sales fell in July for the first time in nine months, a sign that consumer spending is cooling as the boost from generous tax refunds fades. The Commerce Department reported a 0.6% drop in retail sales last month, the largest decline in 14 months, following an unrevised 0.2% gain in June.

Economists had expected a modest 0.1% increase. The unexpected decline was partly attributed to Amazon moving its Prime Day event from July to June, with other retailers matching those promotions, which pulled forward purchases. Lower gasoline prices also reduced receipts at service stations.

The report adds to recent data showing unexpected job losses and mild inflation, reinforcing expectations that the Federal Reserve will likely hold interest rates steady in September unless August data surprises on the upside.

"This points to a material slowdown in real consumer spending growth in the third quarter," said Sal Guatieri, 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."

Leading the decline were nonstore retailers, down 2.2%, and motor vehicle and parts dealers, which fell 1.8%. Electronics and appliance stores slipped 0.5%, while service station receipts dropped 0.9% on cheaper fuel. Clothing stores bucked the trend with a 1.9% rebound, likely helped by back-to-school shopping.

Consumers continued spending on dining out, with food services and drinking places rising 0.5% after a 0.4% gain in June. Furniture, building materials, and health and personal care stores also saw increases.

Core retail sales, which exclude automobiles, gasoline, building materials, and food services, fell 0.4% in July, confounding expectations for a 0.3% gain. That measure closely tracks the consumer spending component of gross domestic product.

While the tax refund tailwind has faded, economists note that a strong stock market rally — the S&P 500 is up 14% this year — has boosted household wealth. Analysts at PNC Financial observed that households appeared more sensitive to gasoline prices in July than earlier in the year, creating a less supportive backdrop for spending in the second half. Still, they said it was "difficult to envision a scenario where spending truly rolls over," given rising wealth and evidence of upper-income and older households tapping into those gains.

Consumer spending, which accounts for more than two-thirds of US economic activity, grew at a 3.2% annualized rate in the second quarter, with overall GDP expanding at a 1.5% pace.