US retail sales rise in July, but soft job market threatens spending

U.S. retail sales rose 0.5% in July, boosted by strong auto demand and discount events at Amazon and Walmart, according to the Commerce Department. June’s sales were revised up to 0.9%, easing concerns of a broader economic slowdown. Sales were up 3.9% from a year earlier.

Auto purchases surged 1.6%, partly driven by demand for electric vehicles ahead of expiring tax credits. Online sales rose 0.8%, while clothing (+0.7%), furniture (+1.4%), and sporting goods (+0.8%) also climbed. But spending fell at building materials (-1.0%), electronics (-0.6%), and restaurants (-0.4%), suggesting pressure on household finances.

Core retail sales, which feed into GDP, rose 0.5% after a revised 0.8% gain in June, with economists estimating a 0.3% increase adjusted for inflation. Still, risks loom as the labor market softens and goods prices rise.

Consumer sentiment weakened in August, with inflation expectations climbing to 4.9% from 4.5% in July, the University of Michigan reported. Import prices rose 0.4% in July, signaling exporters are not offsetting U.S. tariffs.

The Fed is expected to keep rates steady at its Sept. 16-17 meeting, despite Treasury Secretary Scott Bessent floating the possibility of a larger cut. Economists, however, warned that accelerating inflation may prevent policy easing.

Stocks slipped, the dollar weakened, and Treasury yields rose. Manufacturing also showed strain, with Fed data indicating factory output stalled in July.