U.S. retail sales rose 0.5% in July, lifted by strong auto demand and major sales promotions from Amazon and Walmart, according to Commerce Department data released Friday. June’s sales were revised up to a 0.9% gain, easing concerns about a broader slowdown in consumer spending following three months of soft job growth.
Motor vehicle sales increased 1.6% in July, fueled in part by purchases of battery-powered electric vehicles ahead of the Sept. 30 expiration of federal tax credits. Online sales rose 0.8%, aided by expanded promotions such as Amazon’s 96-hour sale on back-to-school items and electronics. Clothing store sales increased 0.7%, while furniture sales jumped 1.4%. Sporting goods, hobby, music, and book store sales climbed 0.8%.
However, some categories posted declines. Building material and garden equipment sales fell 1%, electronics and appliance store receipts dropped 0.6%, and spending at restaurants and bars — often viewed as a gauge of household finances — slipped 0.4% after a 0.6% rise in June.
Core Sales and Inflation Pressures
Excluding autos, gasoline, building materials, and food services, core retail sales rose 0.5% after an upwardly revised 0.8% gain in June. Economists estimate core sales, adjusted for inflation, rose 0.3% in July, signaling a solid start to third-quarter consumer spending.
But risks are mounting. Consumer sentiment declined in August, according to the University of Michigan, with buying conditions for big-ticket items hitting a one-year low. Inflation expectations for the next year rose to 4.9% from 4.5% in July.
“Underlying fundamentals are clearly softening,” said Lydia Boussour, senior economist at EY-Parthenon. “Demand destruction from higher tariffs is likely to become more pronounced as consumers increasingly scale back discretionary purchases.”
Import prices climbed 0.4% in July, driven by consumer goods costs, the Labor Department said. Prices for imported consumer goods excluding autos also rose 0.4%, suggesting foreign suppliers are not cutting prices to offset U.S. tariffs.
Implications for Federal Reserve Policy
The sales and inflation data complicate expectations for a large interest rate cut at the Fed’s Sept. 16-17 meeting. While Treasury Secretary Scott Bessent has said a half-point cut is possible given the soft labor market, some analysts are skeptical.
“There is no data-based support here for a rate cut in September,” said Conrad DeQuadros, senior economic advisor at Brean Capital.
The Fed has kept its benchmark rate at 4.25%-4.50% since December. Financial markets still anticipate some easing next month, though signs of accelerating inflation may temper the central bank’s response.
Stocks traded mostly lower Friday. The dollar weakened against a basket of currencies, while U.S. Treasury yields rose.
