Retail sales bounce back

July 17, 2025

June retail sales rose 0.6%, a surprise to the upside as market expectations were for a 0.1% rise. That reflects a rebound from the 0.9% drop in May. A relaxation in consumer worries and improvement in sentiment prompted households to open their wallets. The strength in the June report was broad-based with many categories posting gains.

Sales of motor vehicles and parts rose 1.2% after declining in the prior two months. Although June light vehicle sales declined to a 15.3 million annualized pace from 15.7 million in May and new vehicle prices fell according to the CPI report, wealthier households' purchases of higher priced pickup trucks and SUVs provided a lift.

Sales at building materials, garden equipment and supply dealers rose 0.9%. Clothing store sales also went up by 0.9%. The rise in apparel purchases could reflect early shopping to blunt the higher costs expected for back-to-school items. The consumer pulse survey conducted by our consumer and retail practice reveals that families are reorienting spending plans as back-to-school cost expectations creep higher.

Sales at department stores declined 0.8%, the fourth consecutive month of declines; they continue to lose ground to warehouse-style stores. General merchandise store sales, which include big-box discounters, rose 0.5%. That suggests big-box stores continue to attract high-income households earning $100,000 and higher.

Sales at eating and drinking establishments rose 0.6% in June. Eating out costs increased 0.4% in June, while full-service restaurant prices rose 0.5%, suggesting stagnation in real terms. Prices at limited-service restaurants decelerated as they continue to offer value deals for price conscious shoppers.

Core retail sales, which exclude eating and drinking places, automobile dealers, gasoline stations and building materials stores, increased 0.5%, outpacing a revised 0.2% in May. The Q2 data suggests real personal consumption expenditures growth of 1.4% at an annualized pace in the second quarter versus 0.5% in the first quarter. We estimate real GDP growth at 2.4% in the second quarter after contracting by 0.5% in the first quarter.

The two categories that showed declines in June were furniture store sales and electronics stores, each down 0.1%, as prices for those items rose due to the impact of tariffs. Higher computer prices also blunted sales; smart phones were exempted from tariffs.