U.S. retail sales rose firmly in July, boosted by strong demand for automobiles and aggressive promotional campaigns from retailers such as Amazon and Walmart. The uptick comes despite concerns over a cooling labor market and rising prices that could weigh on consumer spending in the months ahead.
The Commerce Department reported that retail sales increased 0.5% in July, following an upwardly revised 0.9% gain in June. On a year-over-year basis, sales climbed 3.9%. Auto dealers led the way, with receipts rising 1.6%, supported in part by a rush to purchase electric vehicles before federal tax incentives expire at the end of September.
Promotions Drive Online Momentum
E-commerce platforms saw continued strength, with online sales rising 0.8%. Both Amazon and Walmart extended their promotional periods to attract budget-conscious shoppers, offering discounts across categories ranging from apparel to electronics. Amazon expanded its sales window to 96 hours, doubling its usual timeframe.
Other categories also showed resilience: clothing store sales advanced 0.7%, furniture outlets rose 1.4%, and sporting goods retailers rebounded with 0.8% growth. Economists noted that in several cases, increases reflected higher prices rather than stronger volumes, a sign of tariff-related cost pressures.
Weak Spots in Consumer Spending
Not all sectors gained. Sales at building material and garden equipment stores slipped 1.0%, while electronics and appliance retailers saw a 0.6% decline. Dining out also weakened, with food services and drinking establishments reporting a 0.4% drop, viewed by analysts as a bellwether for household financial health.
Excluding volatile categories such as autos, gasoline, building materials, and food services, core retail sales rose 0.5%. Adjusted for inflation, economists estimate core sales gained 0.3%, indicating a modest but positive start to the third quarter.
Fed Policy Outlook
The stronger-than-expected July data, coupled with firmer import prices and consumer inflation expectations, may complicate prospects for the Federal Reserve’s September policy meeting. While some policymakers and analysts have suggested the possibility of a rate cut, others argue that resilient retail activity and mounting price pressures undermine the case for easing.
Consumer sentiment, however, is showing cracks. The University of Michigan reported that confidence fell in August, with perceptions of buying conditions for durable goods hitting a one-year low. Inflation expectations over the next 12 months climbed to 4.9%, up from 4.5% in July.
Trade Pressures and Manufacturing Strains
Tariff-related impacts remain a key concern. Import prices rose 0.4% in July, particularly for consumer goods, highlighting that exporters are not reducing prices to offset higher duties. Analysts caution that tariffs, combined with supply chain disruptions, could further restrain U.S. manufacturing output, which stalled last month according to Federal Reserve data.
As Lydia Boussour, senior economist at EY-Parthenon, noted: “Underlying fundamentals are clearly softening. In the months ahead, demand destruction from higher tariffs is likely to become more pronounced as consumers increasingly cut back on discretionary purchases.”
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IMAGE: Reuters
