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By Matt Harris, CFA
Senior Portfolio Advisor
HilltopSecurities Asset Management
Last week’s disappointing jobs report raised questions about the strength of the labor market, while Wednesday’s Consumer Price Index release met expectations, showing some moderation in the inflation outlook. Heading into the final trading session of the week, the market turns its attention to the July Retail Sales report.
According to the Census Bureau, advance retail and food services sales fell 0.6% in July, marking the largest monthly decline in more than a year and coming in well below expectations for a 0.1% increase. Sales excluding autos and gasoline declined 0.2%, while the closely watched retail control group fell 0.4%, missing forecasts for a 0.3% gain.
Retail sales are reported in nominal dollars and are not adjusted for inflation. Because of that, monthly fluctuations can reflect both changes in consumer demand and changes in prices. Prior to July’s weakness, inflation-adjusted consumer spending had remained relatively resilient in recent months. The latest GDP report showed real personal consumption expenditures growing at a 3.2% annualized pace during the second quarter, helping support overall economic growth despite ongoing concerns about the consumer. Data from the Chicago Fed’s inflation-adjusted retail sales tracker has pointed to stronger underlying spending trends than headline retail sales alone may suggest.
The weakness in July was broad. Of the thirteen major retail categories tracked by the Census Bureau, eight posted monthly declines while five increased. Motor vehicle and parts dealers led the downside, falling 1.8% after a strong first half of the year. Online retailers declined 2.2%. Electronics and appliance stores fell 0.5%, while gasoline station sales dropped 0.9%.
On the positive side, clothing and accessory stores rose 1.9%, health and personal care stores increased 0.7%, miscellaneous retailers gained 0.5%, and food service and drinking establishments advanced 0.5%. General merchandise stores posted a modest 0.3% increase.
It’s worth noting the decline in the retail control group, which fell 0.4% during the month. The control group excludes automobiles, gasoline stations, building materials, and restaurants, making it a better measure of consumer demand. Economists closely watch this number because it is the same spending categories used by the Bureau of Economic Analysis when calculating Personal Consumption Expenditures, the largest component of GDP. The July drop was the largest decline in the control group since January 2025 and suggests consumers may be becoming more cautious after a stronger first half of the year.
Earlier this year, spending received support from unusually large tax refunds and a declining personal saving rate. With those tailwinds fading and labor market growth showing signs of slowing, economists will be monitoring if July represents a temporary pause or the beginning of a broader slowdown in consumer activity.
July’s combination of softer retail sales, a weaker employment report, and lower inflation backs up the idea that economic growth is moderating versus accelerating. While one month’s data does not make a trend, the retail sales numbers suggest the economy entered the second half of the year with less momentum than many had anticipated, giving the Fed additional time to assess incoming labor market and inflation data before considering their next move.
About Scott McIntyre, CFA
As HilltopSecurities Asset Management’s Co-Head of Investment Management, Scott McIntyre specializes in investment management services and is responsible for the management, oversight and trade supervision of more than $30 billion in institutional fixed income assets for HilltopSecurities’ public sector municipal clients. Scott also provides investment advice and consulting, reviews local government investment policies, formulates overall investment strategies, evaluates account performance and oversees the day-to-day operations. He is a member of the Chartered Financial Analyst (CFA) Institute and a CFA Charterholder, a two-term advisor to the GFOA Treasury and Investment Management (TIM) committee, a Registered Investment Advisor, and holds FINRA Series 7, 24, 63, and 65 licenses.
About Greg Warner, CTP
As HilltopSecurities Asset Management’s Co-Head of Investment Management, Greg Warner specializes in investment management services and is responsible for the management and oversight of more than $30 billion in institutional fixed income assets for HilltopSecurities’ public sector municipal clients. Greg coordinates all client services and portfolio management duties, including security evaluation and portfolio analysis, trading, investment reporting, board presentations, and monitoring of broker-dealer relationships. He is an advisory committee member to the Texas Association of Counties, a member of the Government Treasurers’ Organization of Texas (GTOT), a Registered Investment Advisor, a Certified Treasury Professional (CTP) and holds FINRA Series 7, 63, and 65 licenses.
About Matt Harris, CFA
As HilltopSecurities Asset Management’s Senior Portfolio Advisor, Matt Harris specializes in investment management services for public sector municipal clients. He developed his experience in the banking industry, supporting balance sheet management, interest rate risk analysis, liquidity planning, and investment strategy implementation. At HilltopSecurities, he works closely with clients to develop and implement customized investment strategies, oversees account documentation and reporting, and assists clients with the public funds depository review process, including competitive RFP evaluations. Harris is a member of the CFA Institute and a CFA Charterholder, a Registered Investment Advisor, and holds FINRA Series 7, 63, and 66 licenses.
The paper/commentary was prepared by HilltopSecurities Asset Management (HSAM). It is intended for informational purposes only and does not constitute legal or investment advice, nor is it an offer or a solicitation of an offer to buy or sell any investment or other specific product. Information provided in this paper was obtained from sources that are believed to be reliable; however, it is not guaranteed to be correct, complete, or current, and is not intended to imply or establish standards of care applicable to any attorney or advisor in any particular circumstances. The statements within constitute the views of HTS and/or HSAM as of the date of the document and may differ from the views of other divisions/departments of Hilltop Securities Inc. and its affiliates. In addition, the views are subject to change without notice. This paper represents historical information only and is not an indication of future performance. Sources available upon request.
HilltopSecurities Asset Management is an SEC-registered investment advisor. Hilltop Securities Inc. is a registered broker-dealer, registered investment adviser and municipal advisor firm that does not provide tax or legal advice. HTS and HSAM are wholly owned subsidiaries of Hilltop Holdings, Inc. (NYSE: HTH) located at 717 N. Harwood St., Suite 3400, Dallas, Texas 75201, (214) 859-1800, 833-4HILLTOP.