The Commerce Department reported a 0.6% drop in U.S. retail sales for July. This figure marks the largest monthly decline since May of the previous year. The results missed economist expectations for a modest increase. Persistent inflation and a cooling labor market are heightening concerns over consumer health. Previous spending gains relied heavily on support from tax refunds.
Weakness spread across sectors, specifically hitting nonstore retailers and motor vehicle dealers. Sales decreased even when excluding volatile auto and gas categories. Early August data also showed a significant decline in U.S. consumer sentiment.
The consumption slowdown directly affects investors in the Consumer Discretionary sector. Lower spending could reduce future earnings for companies within the XLY and FDIS ETFs. Economists are currently reassessing growth outlooks following the data.