US consumers cut retail spending sharply in July

<i>David Paul Morris/Bloomberg/Getty Images via CNN Newsource</i><br/>A shopper inside a Hollister store in Walnut Creek

By CNN Newsource

Published August 14, 2026 5:39 am

By Bryan Mena, CNN

Washington (CNN) — The US economy is showing some cracks beneath the surface.

Retail sales fell 0.6% in July from the prior month, the Commerce Department said Friday, down from June’s 0.2% and well below the 0.1% gain that economists projected in a poll by data firm FactSet. It was the steepest drop since May 2025. The figures are adjusted for seasonal swings but not inflation.

Consumer spending is the lifeblood of the US economy, accounting for about two-thirds of economic growth. Friday’s report shows that economic engine might be losing momentum.

Sales at gasoline stations fell 0.9% in July, coinciding with the drop in energy prices that month. That dragged down the overall reading for July, but when excluding those sales, retail spending was still down 0.6%. And a measure of retail spending that strips out volatile categories and is seen as a proxy for underlying demand also came in worse than expected, declining 0.44% in July, compared to the 0.4% gain economists projected.

Retail spending has trended lower since the spring as the boost from bigger tax returns faded and higher energy prices took a bite out of people’s paychecks. Americans’ attitudes toward the economy have also been down in the dumps due to the wartime price spikes.

“American consumers are showing signs of fatigue,” Heather Long, chief economist at Navy Federal Credit Union, said in commentary issued Friday. “Some of the pullback in July is due to Amazon Prime Days, Walmart+ and Target Circle deals happening in June. But even with lower spending on gas in July, consumers weren’t eager to spend elsewhere.”

Online sales were down 2.2% in July, the biggest decline of all categories, followed by a 2% decrease at car dealerships. Meanwhile, spending at restaurants and bars climbed 0.5% last month.

For years, the US consumer has proven resilient through a series of economic challenges, such as the Fed’s aggressive rate-hiking campaign to tame inflation from 2022 to 2023 and the uncertainty stemming from President Donald Trump’s sweeping policy changes during his second term. Spending has held up, in large part due to persistently low unemployment and a buoyant stock market that has boosted household wealth for many.

In July, employers shed 23,000 jobs and the pool of available workers shrank to its lowest level since 1976, outside of the pandemic, according to government data. Unemployment, however, remains historically low, at 4.1%, and some of the decline in labor force participation reflects the aging population.

This story is developing and will be updated.