- U.S. retail sales rose 0.6% m/m in August 2025 (July revised 0.6%), and core sales ex-autos/gas rose 0.7%.
- Discretionary categories led, with online sales up 2.0% m/m and gains in clothing and sporting goods.
- Tariff-sensitive and staple areas were weak to flat (e.g., furniture down, groceries lagging inflation), implying inflation-driven nominal growth and consumer trade-down.
- Resilient spending may temper expectations for rapid Fed rate cuts and favors selective sector-tilted ETF positioning toward stronger retail segments.
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The latest retail sales report for August 2025 indicates that U.S. consumer spending remains more resilient than many forecasters expected. Headline retail and food service sales rose by 0.6% m/m, matching a revised July gain of 0.6%. Excluding vehicles and gasoline, core retail rose 0.7% m/m. Year-over-year growth for nominal sales was near 5.0%, while real (inflation-adjusted) volumes showed a more modest upward trend, suggesting inflation is playing a meaningful role in boosting nominal sales.–
Discretionary retail categories continue to outperform: online/non-store retail saw a 2.0% increase; clothing and accessories rose by 1.0%; and sporting goods, hobby, musical instruments & books advanced 0.8% m/m. These gains were largely driven by seasonal factors (e.g., back-to-school), stronger spending among higher-income households, and shoppers attempting to preempt further tariff-related price increases.–
By contrast, tariff-sensitive and essential categories—furniture stores dropped 0.3%, health & personal care and general merchandise were flat to slightly negative, and while groceries edged up, the growth lagged inflation. This suggests middle and lower-income consumers are under strain, shifting their spend toward necessities and delaying purchases in volatile durable goods sectors.–
From a macro policy perspective, this duality—solid nominal spending despite weakening underlying volume growth and inflation—is likely to influence Federal Reserve decision-making. While headline retail strength supports rate cut expectations, inflationary pressures and labor market softness could provoke caution. The Fed may face pressure to deliver a more balanced stance—potentially fewer or later cuts.–
Strategic implications for investors include leaning into ETFs and stocks exposed to discretionary and online retail segments, while hedging or avoiding exposure to segments heavily impacted by tariffs or inflation. Monitoring companies’ margin pressures, pricing power, and consumer sentiment will be critical. Key open questions center on how much of the recent strength reflects real volume growth versus inflation, how sustainable consumer behavior is amid rising costs, and at what point policy tightening or labor market weakness will erode spending momentum.
Supporting Notes
- Retail sales in August 2025 rose +0.6% from July, with a seasonal and inflation-unadjusted annual increase of ~5.0% over August 2024.–
- Core retail sales (excluding auto and gasoline) rose +0.7% month-over-month, beating expectations.–
- Top performing segments: nonstore (online) retailers +2.0% m/m, clothing stores +1.0%, sporting goods/hobby/book segments +0.8%.–
- Tariff-sensitive categories: furniture stores −0.3%, health & personal care and general merchandise slight declines or flat; groceries +0.3%, trailing inflation.–
- Seasonal tailwinds (back-to-school) and preemptive spending ahead of anticipated price increases contributed materially to the strength.–
- Real volume growth is decelerating; forecasts from EY suggest real retail sales growth declining from ~2.4% y/y in Q2 2025 to ~1.0% y/y by early 2026.