US consumers cut retail spending sharply in July

America’s economic engine is losing steam.

Retail sales fell 0.6% in July from the prior month, the Commerce Department said Friday, down from June’s 0.2% and well below the 0.1% gain that economists projected in a poll by data firm FactSet. It was the steepest drop since May 2025. The figures are adjusted for seasonal swings but not inflation.

Retail spending has trended lower since the spring as the boost from bigger tax returns faded and higher energy prices took a bite out of people’s paychecks. Americans’ attitudes toward the economy have also been down in the dumps due to the wartime price spikes.

And people would likely cut back on their spending outright if the labor market starts to falter. In July, employers shed 23,000 jobs and the pool of available workers shrank to its lowest level since 1967, outside of the pandemic, according to government data. Economists, however, say it’s too soon to conclude the job market is crumbling, with unemployment remaining historically low.

This story is developing and will be updated.