Retail sales better than appear at first blush

July 16, 2026

Retail sales rose 0.2% in June, the weakest pace since January. May sales were revised higher. Sales excluding autos fell 0.2%. Sales are not adjusted for inflation. Real retail sales increased 0.6% as the consumer price index (CPI) recorded its largest monthly drop since April 2020 due to falling oil prices. 

Motor vehicle and parts dealers gained 1.9% on the month and 5.7% on the year, helped by flat new vehicle prices and motor vehicle insurance falling 2.0%. Unit sales rebounded in June. New vehicle buying remains concentrated among high-income households. Vehicle parts and maintenance costs are rising in response to tariffs and escalating input costs (petroleum derivatives and transportation) which should add to a new wave of insurance premium hikes in the vehicle sector as we move into 2027. 

Sales at gasoline stations fell 5.3% but surged by 4.4% after adjusting for the drop in prices at the pump. The first thing that consumers cut when prices at the pump go up is the amount that they drive. 

Sadly, those increases could prove short-lived as hostilities with Iran have flared again and the buffers of inventories that limited the surge in oil prices has been depleted. Oil inventories have hit their lowest levels since the early 1980s, which along with caps on refining capacity is pushing up prices of refined products from gasoline to diesel and jet fuel. 

The strongest gains outside of vehicle sales occurred online, at nonstore retailers. They jumped 1.9% in June. Spending moved more rapidly online prior to promotions as delivery costs lagged the rise in prices as the pump.  

Spending at sporting goods, hobby, musical instrument and book stores increased 1.3%. Sales of electronics and appliances added 0.8%. Chip shortages tied to the AI buildout are pushing electronics prices higher for the first time in decades. The full effects of those shifts are still ahead of us and could be amplified by disruptions to key inputs, notably helium, if the strait is not opened soon. 

Building materials and garden equipment stores reported a 0.1% gain. Furniture sales were flat. Housing demand was stymied by rising mortgage rates at the height of the usual spring home buying season. Mortgage rates have hovered around 6.5% since late May after falling below 6% before the conflict with Iran began. 

The wealth effects tied to housing are larger for most households than those tied to the stock market. Home equity loan activity is weak along with refinancing activity. This is suppressing housing-related spending. Spending is geared more toward services than big-ticket items for the home.   

Clothing and accessory stores saw a 0.3% drop in sales, while sales at health and personal care stores fell 0.8%. Department store eked out a 0.1% gain in sales. Low- and middle-income households are focused on necessities while some high-income households are trading down. Big-box discounters, off-price retailers and fast-food chains are the beneficiaries, but recent earnings reports suggest the move downstream by higher income households has not fully offset the stress low- and middle-income households are showing. 

Grocery store sales dropped 0.4% in June but gained 0.9% from a year ago. Spending is in the red after adjusting for inflation on a year-over-year basis. That is due to the collision of cuts to SNAP funding, a surge in usage of GLP-1 drugs, higher energy prices and the rise in food costs. That is making for some tough trade-offs for those who can afford it least. 

Some major chains have announced targeted price cuts to bring consumers back into their stores. The challenge is grocery margins are already thin. Rising transportation costs will exacerbate the situation.

Restaurant and bar sales edged up an almost imperceptible 0.1% and fell after adjusting for inflation. Restaurants have struggled with escalating costs from food to electricity and tariffs. Curbs on immigration are another hurdle and expected to get worse in the months to come as more than 300,000 workers have just lost their temporary protected status. Those workers are concentrated in food preparation (including meat packing) and the care economy.  

Core retail sales, which exclude autos, gasoline, restaurants and building materials stores and feed directly into the GDP spending calculation, rose 0.5% in June. Those gains when combined with the upward revisions to May translate to a sharp acceleration in overall consumer spending in the second quarter, after a dismal first quarter.