U.S. Retail Sales (July 2025)

Retail sales continued to rise in July    

• Building on their gain in June, retail and food services sales continued to grow in July, advancing by 0.5% month-on-month (m/m). This was close to the market expectations for a 0.6% m/m increase, but slower than the upwardly revised 0.9% gain in June (previously reported as 0.6%). 
• A rebound in auto sales last month led to a healthy gain in the autos & parts category – up 1.2% on the month.  Sales at gasoline stations were also higher, rising +0.7%. On the other hand, sales at the building materials and garden equipment & supplies stores declined by 1.0%.  
• Sales in the "control group", which excludes the three volatile components mentioned above (i.e., autos, gasoline and building supplies) as well as restaurants rose by 0.5% on the month and are up 4.8% from the year ago. Sales were higher across most other categories, with gains ranging from 0.8% for sporting goods, hobby and bookstores to 0.4% for health & personal care stores. Miscellaneous and electronics retailers were the only two categories where sales were lower.
• Sales at bars and restaurants – the only service category in the report – declined by 0.4% partially reversing June's 0.6% gain.

Key Implications

• This was a decent report: July's gain in the control group was slightly better than expected, while June's headline gain was also revised higher. Decent retail sales over the last couple of months suggest that consumer spending growth is likely to come in around 1% (annualized) in the third quarter. This is still modest growth, particularly when compared with the 3.5% pace seen in the second half of last year, but slightly better than our initial tracking of just 0.5%.  
• Retail sales are reported in nominal values, with price changes mudding the water. The latest inflation report has shown that core inflation is gathering momentum. Core goods prices continued to rise, with two-thirds of goods categories now seeing price gains over the last three months. Up until recently, businesses have tried to absorb higher costs and shield consumers, but the last few months have shown that some of the costs are now being passed on. We expect greater pass through of tariff-related price increases over the coming months. With the labor market downshifting and cost pressures heating up, consumer spending is likely to remain tepid through year-end.

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