US Retail Sales Decline 0.6% in July, Impacting Consumer Sentiment and GDP Forecasts

In July, American consumers reduced their spending, resulting in a 0.6% month-over-month decline in retail sales, as reported by the Commerce Department’s Census Bureau on August 14. This marks the first drop in retail sales since last October and the steepest decrease since May 2025, contrasting sharply with economists' expectations of a modest 0.1% increase.

The total sales figure reached $763.6 billion, leading to lower Treasury yields and a softened dollar, prompting Wall Street firms to revise their growth projections downward. The decline was widespread, with notable decreases in several categories:

• Nonstore retailers (e-commerce) saw a 2.2% drop.
• Motor vehicle and parts dealers experienced a 1.8% decline.
• Gas stations dropped by 0.9%.
• Electronics and appliance stores slid 0.5%.

Core retail sales, which exclude volatile categories like autos and gasoline, fell by 0.4%, missing the expected 0.3% gain. However, clothing stores managed a 1.9% increase, and food services saw a 0.5% gain. Year-over-year, retail sales are still up by 5.0%.

Consumer sentiment has also taken a hit, with the University of Michigan's preliminary reading for August dropping to 51.0 from 55.2 in July. This decline follows two months of improvement and underscores the importance of consumer spending, which accounts for about two-thirds of US GDP.

In light of these developments, major firms like Goldman Sachs and BMO have adjusted their third-quarter GDP growth estimates. Markets are now pricing in a 69% probability that the Federal Reserve will maintain current interest rates at its September meeting, with Treasury yields and the dollar reacting accordingly.

Latest Insights on US Retail Sales and Economic Sentiment

In July, US retail and food services sales decreased by 0.6%, totaling $763.6 billion, marking the first decline in nine months. This unexpected downturn has prompted a reassessment of consumer sentiment, with the University of Michigan's consumer sentiment index dropping to 51.0 from 55.2.

The probability of a rate hike by the Federal Reserve for the upcoming September meeting has significantly decreased, now estimated between 22.5% and 31%. This shift follows a series of weak economic indicators, including nonfarm payroll and CPI readings.

Despite the decline in consumer sentiment, year-ahead inflation expectations have risen to 4.3%, indicating that while consumers are feeling less optimistic about the economy, they still anticipate rising prices.

The immediate market response has seen lower yields and rising bond prices, suggesting a more cautious approach from the Fed may be on the horizon.