July retail sales extend June strength

August 18, 2025

July retail sales rose 0.5%, a touch below the consensus expectation of up 0.6%. June retail sales were revised upward to show a gain of 0.9% from the originally reported 0.6%. Excluding autos, retail sales rose 0.3%, which was in line with the consensus.

Sales at motor vehicles and parts dealers rose 1.6% after rising 1.4% in June, which is consistent with the strength in the unit sales data. Light vehicle sales rose to a 16.4 million annualized rate in July from 15.3 million in June. New vehicle prices were unchanged in July, providing some comfort to those in the market looking to purchase.

July vehicle sales were aided by higher fleet sales. Sales of electric vehicles rose ahead of the expiration of tax credits coming October 1. We saw a similar surge in electric vehicle sales at the end of 2024 in response to potential changes in tax credits.

For the moment, automakers have been absorbing the cost of tariffs but once new models are released in the fall, the average transaction price of a new vehicle could move above $50,000. That would further reduce affordability although buyers can take advantage of vehicle loan interest deductions enacted this year.

A maximum of $10,000 in interest paid annually is deductible and available through 2028, which would help blunt the impact of rising vehicle prices and high vehicle payments. One in five auto loans is to a borrower paying more than $1,000 per month for their purchase.

Furniture store sales rose 1.4%, sporting goods sales increased 0.8%, and apparel store sales were up 0.7%. Those gains likely arose from anticipatory buying ahead of tariff-related price increases later this year.

Online sales rose 0.8% due to a promotional sales period by a major e-commerce retailer. The online specials were extended this year.

Sales at restaurants and bars fell 0.4% as the cost of eating out has accelerated after a brief pause around the turn of the year.  The cost of food away from home rose 0.3%, with value options at fast-food restaurants partially offsetting persistent gains in full-service restaurants. Food away from home increased by 3.9% from a year ago in July and was up a tick from its annual pace in June. That suggests an even larger pullback after adjusting for inflation.

General merchandise store sales rose 0.4% while department store sales jumped 0.9%, the first rise after four consecutive months of declines. Value conscious shoppers have been visiting big-box discounters in droves at the expense of department stores. We expect this dynamic to continue over the coming months, although traditional department stores clearly appreciated the rebound. Many retailers front-run tariffs and are keeping consumers happy with discounts on existing inventories.

Core retail sales, which exclude eating and drinking places, automobile dealers, gasoline stations and building materials stores, rose 0.5% in July while the June data were revised upward to 0.8%. These suggest real personal consumption expenditures growth of about 1.4% at an annualized pace in the third quarter, the same reading as in the second quarter. That is still a marked slowdown from 2024 but shows consumers are still doing what they can to support the economy.