American consumers did something in July they hadn’t done since last October: they closed their wallets. Retail sales fell 0.6% month-over-month, according to the Commerce Department’s Census Bureau data released on August 14, marking the first decline in nine months and the steepest drop since May 2025.
Economists had expected a modest 0.1% increase. What they got instead was a $763.6 billion sales figure that sent Treasury yields lower, softened the dollar, and prompted Wall Street firms to start revising their growth projections downward.
Where the spending disappeared
The damage was widespread, but a few categories took the hardest hits. Nonstore retailers, a category dominated by e-commerce, saw sales tumble 2.2%. Motor vehicle and parts dealers weren’t far behind with a 1.8% decline. Gas stations dropped 0.9%, and electronics and appliance stores slid 0.5%.
Core retail sales, which strip out the more volatile categories like autos, gasoline, building materials, and food services, fell 0.4%. Wall Street’s consensus estimate had called for a 0.3% gain in that metric.
Not everything cratered. Clothing stores posted a respectable 1.9% increase, and food services and drinking places managed a 0.5% gain. For context, the prior month’s reading had come in at a positive 0.2%. On a year-over-year basis, sales are still up 5.0%.
Consumer sentiment is telling the same story
The University of Michigan’s preliminary consumer sentiment reading for August dropped to 51.0, down from 55.2 in July, ending two consecutive months of improvement.
Consumer spending drives roughly two-thirds of US GDP. Several major firms, including Goldman Sachs and BMO, have already trimmed their third-quarter GDP growth estimates in response to the retail data.
What it means for the Fed and markets
Markets are now pricing in roughly a 69% probability that the Federal Reserve will hold interest rates steady at its September meeting. Treasury yields moved lower in the immediate aftermath of the report. The dollar softened as well.