Retail Sales Slide, Consumer Sentiment Sinks — Evening Brief – 08.14.26
U.S. consumer spending weakened sharply in July and consumer confidence fell in early August, signaling a softer start to the third quarter as households confront persistent price pressures and increased uncertainty about the economic outlook.
Retail and food-services sales declined 0.6% in July from June to a seasonally adjusted $763.6 billion, the Census Bureau reported. The result reversed a revised 0.2% increase in June, and undershot economists’ consensus forecast for a 0.1% gain. Sales still rose 5% from a year earlier, though the government’s retail sales figures are not adjusted for inflation and therefore do not directly measure the volume of goods and services purchased.
The July reading marked a pullback after sales rose for five consecutive months through June. Census had initially reported June sales of $768.6 billion, up 0.2% from May; its revised figure was $768.1 billion, as cited in Friday’s release.
Core retail sales, excluding motor vehicles and parts, fell 0.3% in July, compared with expectations for a 0.2% gain. Sales excluding gasoline and autos, a measure that can reduce the effect of volatile fuel prices and vehicle purchases, dropped 0.2%, against forecasts for a 0.4% rise.
Over the May-through-July period, total retail and food-services sales increased 6.3% from the same three months of 2025. That suggests consumer demand remains higher than a year ago, but the monthly decline points to a less consistent spending backdrop heading into late summer.
Separately, the University of Michigan’s preliminary consumer-sentiment index fell to 51.0 in August from 55.2 in July, well below the 54.2 consensus forecast. The decline ended two months of improvement and reflected weaker expectations for business conditions, the survey said.
“Consumer sentiment fell about 8% this August,” Surveys of Consumers Director Joanne Hsu said. Expected business conditions dropped 11% over the short run and 17% over the long run, she said.
The current-conditions index fell to 51.8 from 54.8, while the expectations index declined to 50.6 from 55.4. One-year inflation expectations edged up to 4.3% from 4.2%, while five-year expectations held at 3.3%.
Only 8% of respondents expect income growth to exceed inflation over the next year, down from 18% in December 2024, Hsu said.