U.S. Retail Sales Decline 0.6% in July Amidst Shifting Spending Patterns
By TopHolding Editorial · Thursday, August 13, 2026 at 8:00 PM
U.S. retail sales experienced a notable 0.6% decline in July, falling short of analyst expectations and marking the largest monthly drop in over a year. The unexpected dip suggests a potential cooling in consumer spending, although specific factors like a shift in Amazon's Prime Day and volatility in auto sales played significant roles.
U.S. retail sales fell 0.6% in July, significantly below the consensus forecast for a 0.1% increase and representing the largest monthly decline in over a year. Despite this monthly contraction, overall retail sales remain up 5.0% compared to a year ago. Excluding the volatile auto sector, sales saw a 0.3% decrease in July, or a 0.5% decline when factoring in revisions to prior months. Annually, sales excluding autos have advanced 5.8% over the past twelve months.
The downturn in July was primarily driven by significant reductions in spending at nonstore retailers, which include internet and mail-order businesses, and a fall in auto sales. Conversely, restaurants and bars recorded the largest increase in sales during the month, indicating a sustained consumer preference for experiential spending. Eight of the thirteen major sales categories did show an increase in July; however, the sharp declines in the two largest categories—autos and nonstore retailers—outweighed gains in sectors like clothing, health & personal care, and general merchandise stores.
The 2.2% drop in nonstore retailer sales in July is likely attributable to a timing shift: Amazon's Prime Day sales event occurred in June this year, whereas it took place in July last year. This suggests that a portion of what would typically be July spending was pulled forward. Similarly, auto sales contributed to the overall decline, falling 1.8% in July after strong increases of 2.4% in June and 1.0% in May. When excluding these more volatile categories, along with building materials and gasoline, sales still declined 0.3% in July. If sales in August and September remain at this level, this "core" measure would indicate a modest 1.0% annualized growth rate for the third quarter compared to the second quarter average, a key input for gross domestic product calculations.
The overall weakness in July's headline retail sales figure followed a robust start to the year for consumer spending, buoyed in part by unusually strong tax refunds that temporarily boosted purchasing power. While nominal retail sales have climbed 5.0% over the last year, adjusting for inflation reveals that "real" inflation-adjusted sales are up 1.7% over the same period. The resilience of restaurant and bar sales, which rose 0.5% in July and have shown consistent growth over the past four months, offers a bright spot, providing the only glimpse into service sector spending within this report. Analysts will closely monitor upcoming data to ascertain whether temporary factors are fading, providing a clearer picture of underlying consumer health and spending trends.
Key terms
1. Retail Sales: A measure of the total sales of goods by retail establishments over a specific period, indicating consumer demand and economic health.
2. Nonstore Retailers: Businesses that sell goods primarily through online channels, mail-order catalogs, or direct selling, rather than from physical storefronts.
3. Core Sales: A measure of retail sales that excludes volatile categories such as autos, building materials, and gasoline, often used to provide a more stable indicator of underlying consumer spending trends relevant to GDP calculation.
Source: This article is adapted from First Trust Portfolios' Data Watch commentary on this data release. The original is available at ftportfolios.com.