U.S. retail sales unexpectedly turned negative in July, with the latest data showing a sharper slowdown in consumer demand than markets had expected.
Figures released Friday by the U.S. Census Bureau showed retail sales fell 0.6% month over month in July, the biggest one-month drop since May 2025. Economists had been looking for a 0.1% increase. Weaker vehicle purchases and a decline in online retail sales were the main drags.
Excluding autos and gasoline, retail sales slipped 0.2% in July, compared with expectations for a 0.3% gain.
The control-group measure of retail sales, which is closely tied to GDP accounting and widely treated as a barometer for consumer spending, fell 0.4% from the previous month. The market had expected a 0.3% increase.
Short-term factors weighed on July spending
After the release, concerns over the outlook for U.S. consumer spending moved higher. The report said economists broadly pointed to the fading effect of one-off support from excess tax refunds in the first half of 2026. It also noted that the personal saving rate in June had fallen to a four-year low, leaving less certainty around the durability of consumer demand.
Looking at the components, apparel, gasoline and furniture sales all posted month-over-month declines. The drop in gasoline sales was linked to lower oil prices.
The report cited an earlier view from Bank of America analysts that this year’s Prime Day and related promotions were pulled forward from July into June. That shift brought online spending forward and left July e-commerce sales noticeably weaker.
Hot weather around the July 4 holiday and fading spending enthusiasm after the World Cup were also cited as factors that weighed on retail activity during the month.
On a year-over-year basis, retail sales still increased 5.0% in July. Even so, the pace had slowed from earlier readings.
Control-group weakness may pressure GDP forecasts
Among the various retail indicators, the control group drew the most attention. That measure excludes autos, gasoline, building materials and food services. It feeds directly into calculations of personal consumption expenditures and then into GDP, making it one of the market’s key gauges of underlying consumer momentum.
The 0.4% monthly decline in July was 0.7 percentage points below the consensus call for a 0.3% rise. According to the report, that gap may add downward pressure to forecasts for third-quarter GDP growth.
The report also said Bank of America data showed core retail sales excluding autos and gasoline fell 0.2% month over month. Taken together, the major core measures all pointed to spending that came in clearly weaker than expected.
K-shaped spending split shows signs of narrowing
The cooling in consumer demand was not evenly distributed across income groups, and the data pointed to a shift in spending patterns.
According to Bank of America’s latest credit card spending data, over the four weeks through Aug. 1, year-over-year spending growth among lower-income households remained above that of higher-income households. That marks a reversal from the K-shaped pattern seen over the past several years, when higher-income consumers were stronger and lower-income households were under more pressure.
The report said the same pattern appeared in discretionary categories and was not simply the result of changes in gasoline prices. Discretionary spending among lower-income households remained solid, while higher-income households showed a milder cooldown.
Bank of America said that pattern suggests the K-shaped economy is gradually converging toward a C-shaped one, meaning spending trends across income groups are becoming more aligned. For the market, the report said, parts of the retail sector that had relied more heavily on higher-income consumers may face growth pressure.