Retail Spending Declines in July as Tax Refund Effects Wear Off

A pullback in consumer spending sent retail sales into negative territory in July, with the Commerce Department reporting a 0.6% decline from the previous month’s upwardly revised 0.2% gain. The decrease marks the largest monthly drop since May 2025 and signals a weakening in household purchasing power as the financial benefits of tax refunds have dissipated.

Americans had bolstered their retail activity during April and May by drawing on government tax refunds, but that tailwind evaporated last month. When adjusted to exclude volatile sectors such as gasoline stations and automobile dealerships, the broader retail sales figure still contracted by 0.2%, indicating weakness across multiple categories.

Consumers retreated particularly sharply from purchases of electronics and online merchandise. Rising fuel costs added pressure to household budgets, with gasoline prices climbing to $4.08 per gallon by Friday according to the American Automobile Association, up substantially from $3.85 a month prior.

The retail data captures only a portion of consumer economic activity and excludes services such as travel and lodging. Restaurants represented the sole services category tracked in the report, posting a modest 0.5% spending increase for the month.