Shoppers Pulled Back in July as Sentiment Slid Again
Retail sales fell 0.6%, the steepest monthly drop since May 2025, and a preliminary August sentiment reading of about 51 ended a two-month improvement in how Americans feel about the economy.
WASHINGTON — American consumers cut their spending in July, with retail sales falling 0.6% from June — the sharpest monthly decline in more than a year — in a report that arrived alongside a fresh slide in consumer confidence.
The University of Michigan's preliminary reading for August came in around 51, roughly 8% below the prior month and ending a two-month run of improvement. Survey respondents continued to name prices as their dominant concern.
The consumer had been the last strong pillar
For most of the past year, household spending has done the work of holding up an economy where hiring stalled and government outlays shrank. July broke that pattern. The pullback was broad rather than concentrated in a single category, which argues against explaining it away as a weather or timing artifact.
The retail sales figures are reported in nominal dollars, which makes the decline more striking: with prices still rising about 3.4% a year, a 0.6% drop in dollars spent implies a meaningfully larger drop in goods bought.
A bifurcated picture
Survey and card-spending data continue to describe two different consumers. Higher-income households, buoyed by equity portfolios that have set records this month, keep spending on travel and services. Lower- and middle-income households, facing energy bills up nearly 15% from a year ago and wage growth of just 3.2%, have been trading down and delaying discretionary purchases for the better part of two quarters.
Retailers have described the same split from the other side, reporting resilient demand at the top and bottom of their price ladders and softness in the middle.
Why it matters for the Fed
Consumer spending is roughly two-thirds of GDP. A single weak month does not establish a trend, but it lands on top of a negative payroll print and a second-quarter growth rate of 1.5%.
For a committee already split three ways in July, the report is another argument against tightening — and a reminder that the risks the Federal Reserve is weighing are no longer symmetric in the way they were a year ago.
