US Retail Sales Gain Momentum in July Amid Rising Economic Risks

US retail sales increased by 0.5% in July 2025, bolstered by strong demand for motor vehicles and aggressive promotions from retailers like Amazon and Walmart. According to Reuters, “U.S. retail sales increased solidly in July, supported by strong demand for motor vehicles as well as promotions by Amazon.com and Walmart.” Auto sales surged 1.6%, partly due to a rush for electric vehicles before federal tax credits expire on September 30. Core retail sales, excluding automobiles, gasoline, and building materials, also rose 0.5%, signalling resilience in consumer spending, a key driver of global economic growth. Upward revisions to June’s data (0.9% gain) further ease concerns about an economic slowdown, supporting optimism for equity markets like the S&P 500.

Despite the retail strength, challenges loom. A softening labour market, with weak employment growth over the past three months, threatens consumer purchasing power. Import prices rose 0.4% in July, driven by consumer goods, as noted in Reuters: “Import prices increased 0.4% in July, boosted by a strong rise in the cost of consumer goods.” The Yahoo Finance source adds, “Consumers maintain a moderate rate of spending and even picked up the pace in the past two months as the tariff-price pass-through has been limited thus far,” suggesting ongoing tariffs could further elevate costs. Consumer sentiment weakened in August, with inflation expectations climbing to 4.9%, raising concerns about future spending.

Rising import prices and tariff pressures could dampen consumer demand, impacting global markets. Reuters notes, “Underlying fundamentals are clearly softening,” highlighting risks to economic stability. Declines in sectors like electronics (down 0.6%) and dining (down 0.4%) reflect cautious consumer behaviour. The Federal Reserve faces a delicate balance, with markets anticipating a potential rate cut in September, though some economists argue against it due to inflation concerns. For global investors, the interplay of strong retail data and tariff-driven risks suggests a cautious outlook, with manufacturing and consumer sectors particularly vulnerable to cost pressures.