Key Points
- Retail sales, excluding cars and gas, jumped 1.5% in July after falling in June. The increase may be partly due to retailers passing on higher prices from tariffs.
- Company executives say consumers are becoming more cautious and “trading down” to cheaper items.
- Low-income shoppers are feeling the most pressure and are cutting back on spending.
- Shoppers are buying fewer extras, such as drinks and appetizers, at restaurants to save money.
Retail spending bounced back in July, but the solid numbers might be hiding some growing worries about the U.S. consumer. New data shows that retail sales, not including cars and gas, jumped 1.5% last month, a strong reversal from a slight dip in June. But beneath the surface, there are signs that tariffs and inflation are starting to weigh on shoppers.
What drove the July spending spree? It could be a mix of things, like back-to-school shopping and a longer Amazon Prime Day. But analysts at Bank of America have another theory: some of the increase could be coming from retailers passing on the cost of new U.S. tariffs to their customers.
This means people might not be buying more stuff; they’re just paying higher prices for it.
This lines up with what company executives are saying. They see consumers becoming more cautious. Shoppers are “trading down” to cheaper store brands and cutting back on extras. The CEO of the company that owns Applebee’s and IHOP said customers are ordering fewer drinks and appetizers to manage their bills.
The economic pressure is hitting low-income consumers the hardest. The CEO of Crocs noted that these shoppers are the “most sensitive to price increases, are most nervous, and, in some cases, are not leaving the house.”
So while the headline sales numbers look good, the details paint a picture of a consumer who is increasingly feeling the pinch.
