More US consumers are beginning to cut retail spending as concerns grow over rising prices across the board.
Retail sales fell 0.6% in July from the prior month, the Commerce Department said Friday, down from June’s 0.2% and marking the steepest drop since May 2025.
These numbers are not adjusted for inflation, only for seasonal swings.
A separate report from the University of Michigan showed that consumer sentiment dropped around 8% early this month to a preliminary reading of 51, ending a two-month streak of rising sentiment.
This means consumer behavior is shifting based on sentiment as they lose confidence in the US economy.
Consumer spending is extremely important for the economy as it’s what keeps the world as we know it moving forward.
Consumer spending affects everyone. If Americans are spending less, businesses fall or go bankrupt, leading to an economic downturn and eventually a recession.
“American consumers are showing signs of fatigue,” Heather Long, chief economist at Navy Federal Credit Union, said in commentary issued Friday.
Rising prices in the US are contributing largely to a drop in consumer retail spending.
A combination of rising gas prices, rising grocery store prices, and higher supply chain costs, are currently pricing out Americans.
Sales at gasoline stations fell 0.9% in July. Some Americans are opting out of filling a full tank to get by, spending only what’s necessary in the moment.
Economists are surprised as they projected gains rather than losses.
Tracking US retail sales and we find that online sales were down 2.2% in July, followed by a 2% decrease at car dealerships, according to the US Census Bureau.
Meanwhile, spending at restaurants and bars climbed 0.5% last month.
“Some of the pullback in July is due to Amazon Prime Days, Walmart+ and Target Circle deals happening in June,” Long said.
“But even with lower spending on gas in July, consumers weren’t eager to spend elsewhere.”
Joanne Hsu, the Michigan survey’s director, also said in a release Friday that there’s a pervasive “belief that high prices will continue to be burdensome.”
Overall, retail sales were up 5% in July from a year earlier, reflecting the broader look into the US economy.
A K-shaped economy has been the biggest contributor to this.
Wealthier consumers have been driving a bulk of America’s shopping spree, likely supported by their growing stock market portfolios.
A K-shaped economy is a situation where different parts of society move in opposite directions at the same time.
When drawn on a graph, the paths look like the arms of the letter K.
One group goes up and thrives, while another group goes down and struggles
Low and middle-income households continue falling further behind as the richest Americans continue to grow.
“There are a lot of households who live paycheck to paycheck, and it just needs like one thing to happen to them that could lead to a delinquency,” Fed researchers said.
Frank Nez is an American entrepreneur, journalist, writer, and investor. Frank's work has been cited by SEC and Congressional reports. Franknez.com is a personal finance and market news publication, dedicated to publishing content on money, investing, entrepreneurship, and retail investor news.
