U.S. retail sales unexpectedly post largest drop in more than a year

Anne D'Innocenzio, Associated Press Anne D'Innocenzio, Associated Press

NEW YORK (AP) — After splurging on the World Cup and Amazon Prime Day sales, Americans unexpectedly cut their spending in July by the biggest amount in more than a year.

Retail sales fell 0.6% last month, marking the biggest decrease since May 2025, compared with a revised gain of 0.2% in June, according to the Commerce Department data released Friday. Economists were projecting a small increase.

The decline followed a notable bump in spending in both April and May as Americans dipped into their government tax refunds.

The drop in spending for July, however, raised concern among some economists about the resiliency of consumers who have powered the economy forward despite nagging inflation and soaring gasoline prices. Yet, it may be too early to declare a retreat by one of the strongest and most consistent forces in the U.S. economy of late.

Still, the weak sales report follows unexpectedly sluggish jobs figures last week, and both suggest the economy could be slowing after strong consumer and business spending in the first half of the year.

Separately, consumers turned more pessimistic about the economy this month, likely driven by stubbornly high prices, according to the University of Michigan's consumer sentiment index, released Friday.

Americans owe more than a trillion dollars in credit card debt, up 60% from just five years ago. Meanwhile, higher interest rates make debt even more difficult to pay off, causing credit card delinquencies to surge, economics correspondent Paul Solman reports. Watch the segment in the player above.

While most economists still expect solid economic growth in the July-September quarter, many have lowered their forecasts in the wake of the retail sales report.

Prices in July, which were not adjusted for inflation, were impacted by falling sales at gas stations. Fuel prices remained low until later in the month when evidence of a stalemate between the U.S. and Iran in the Strait of Hormuz began to grow. Business at gas stations fell 0.9% last month, according to the report.

Gas prices have been rising since the final week of July and ticked higher again overnight to $4.08 per gallon, up from $3.85 a month ago, according to motor club AAA. That's 92 cents more per gallon than Americans were paying last year at this time.

Gas prices typically begin to recede in August as the driving season comes to a close and the AAA said this week that the high cost of fuel for Americans this late in the year is unprecedented.

Excluding sales at gas stations and auto dealers, retail sales in July fell 0.2%.

Business at motor vehicle and parts dealers saw a 1.8% drop from a 1.9% increase in June, which was helped by auto makers' promotion incentives.