In July, consumer spending remained steady, especially at car dealerships, despite the growing impact of tariffs introduced by President Donald Trump, which are beginning to affect jobs and cause some price hikes. Analysts suggest that the ongoing uncertainty around these tariffs is prompting shoppers to accelerate purchases of furniture and other goods before anticipated price increases.
According to the Commerce Department’s report released on Friday, retail sales grew by a solid 0.5% in July compared to June. June’s retail sales were also revised upward to a 0.9% increase from the previously reported 0.6%, indicating stronger consumer activity than initially thought. This positive momentum followed declines in April and May.
When excluding auto sales, which have fluctuated due to tariffs on many imported vehicles, retail sales rose by 0.3% in July. Auto sales themselves increased by 1.6%, appearing to normalize after a surge earlier in the year as consumers rushed to avoid the new 25% tariff on imported cars and parts.
Spending was robust across multiple retail categories, including clothing and online stores, as well as home furnishings and furniture, which saw particularly strong gains. However, electronics store sales declined, and restaurant sales—the only services category in the report, often seen as an indicator of discretionary spending—also dropped, as more people chose to eat at home to save money.
A measure of sales excluding volatile categories like gas, autos, and restaurants rose 0.5% in July, signaling ongoing consumer demand for discretionary items.
Economist Tuan Nguyen from RSM US noted that while the July increase seems promising, it’s hard to attribute the growth solely to strong consumer confidence given the economic uncertainty and tariffs. Part of the rise may be due to higher prices caused by the tariffs themselves. Nguyen also suggested that consumers might have been advancing their purchases ahead of an August tariff deadline, taking advantage of sales events like Amazon Prime Day, Walmart, and Target promotions.
The significant jump in furniture sales, in particular, points to shoppers trying to beat the upcoming tariff increases. Nguyen emphasized that there is no fundamental weakness in household finances suggesting a spending recession. However, he cautioned that the remainder of the year could see unpredictable fluctuations due to ongoing tariff-related noise.
Earlier this month, a separate Labor Department report showed a sharp slowdown in U.S. hiring, with only 73,000 jobs added in July—far below the expected 115,000—reflecting how trade policies may be hindering business growth and clouding economic prospects.
Additionally, the government’s inflation data released Tuesday indicated that overall inflation remained steady in July. Rising costs for some imported goods were balanced by declines in gas and grocery prices. Consumer prices increased 2.7% compared to a year ago, unchanged from June. On a monthly basis, prices rose 0.2% in July, slightly less than the 0.3% rise in June. Core prices, which exclude food and energy, ticked up 0.3%, a bit faster than the previous month.
These figures suggest that slowing rent increases and cheaper gasoline are offsetting some tariff-driven price pressures. Many businesses are still absorbing much of the tariff costs, but that may soon change. Wholesale inflation unexpectedly surged last month, signaling that tariffs are pushing costs higher and that consumer prices might rise further.
The Labor Department’s producer price index, which tracks inflation before it reaches consumers, jumped 0.9% in July compared to June, the biggest increase in over three years.
As major retailers like Walmart and Target prepare to release their second-quarter earnings next week, analysts will closely examine how consumer spending is holding up and how much retailers are passing on tariff-related cost increases.
Walmart, in May, warned about price hikes on bananas imported from Costa Rica, increasing from 50 to 54 cents per pound. However, it noted that broader price increases wouldn’t become apparent until June and July.
A growing number of companies, including Procter & Gamble, e.l.f. Cosmetics, Black & Decker, and Ralph Lauren, have recently informed investors about raising prices or planning to do so, often targeting premium products to offset tariff costs selectively.
Warby Parker, which has been shifting sourcing away from China, plans to maintain its $95 lens option but is increasing prices on certain lens types. The company is focusing more on older customers needing more expensive progressive lenses, which make up about 40% of prescription lens sales industrywide. Currently, only 23% of Warby Parker’s business consists of these higher-priced lenses.
Neil Blumenthal, co-chairman and co-founder of Warby Parker, told analysts last week that the company successfully implemented targeted price increases that have supported growth.
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