Retail sales slipped 0.6% last month, the biggest drop since May 2025, from a revised gain of 0.2% in June, according to Commerce Department data released Friday.

There was a notable bump in spending in both April and May as Americans dipped into their tax refunds. That affect may have faded last month.

Excluding sales at gas stations and at auto dealers, retail sales in July fell 0.2%. Gas prices bounced back in recent weeks in what appears to be a stalemate in the Strait of Hormuz.

Gas prices ticked higher overnight to $4.08 per gallon, up from $3.85 a month ago, according to motor club AAA. It is 92 cents more per gallon than Americans were paying last year at this time.

July’s retail sales were dragged down by business at motor vehicle and parts dealers, which saw a 1.8% drop from a 1.9% increase in June. June’s sales were helped by auto makers’ promotion incentives.

Electronics and appliance sales declined 0.5%. Online sales fell 2.2% from June when they were fueled by Amazon’s four-day Prime Day event that began in late June, earlier than previous years.

“It’s not lights out for the economy, but new risks are emerging if the consumer pulls their support for economic growth” said Christopher S. Rupkey, at the financial research firm fwdbonds.

The data offers only a snapshot of consumer spending and doesn’t include activities like travel and hotel stays. The lone services category – restaurants – registered a 0.5% increase.

U.S. inflation declined slightly in July as gas and grocery prices slipped, though inflation is still rising more quickly than before the Iran war.

Consumer prices increased 3.4% in July from a year ago, down slightly from 3.5% in June, the Labor Department said Wednesday. Inflation had fallen to 2.4% before the Iran war. On a monthly basis, prices rose just 0.1% from June to July.

The modest decline marked the second straight decrease after sharply higher gas prices pushed inflation to 4.2% in May, a three-year high.

Yet even with that respite, prices are still rising more quickly than average wages, underscoring the challenges many Americans have had paying for groceries, gas, and healthcare. And some costs continued to climb last month, including airfares, computers, and used cars.

Given such a tough environment, economists are closely watching how families spend during the back-to-school shopping season, the second largest shopping period for retailers after the winter holidays.

Shopping has been steady, though Americans have dialed in on sales as they grow more

Off-price retailers, consumer electronics and office supply retailers have had a “strong early start” to the back-to-school season, said Elizabeth Lafontaine, director of research at Placer.ai.

“Consumers have looked to take advantage of early deals to check off their lists,” Lafontaine said.

Walmart, Target and other retailers have been pushing discounts for the fall season, seeking to lure inflation-weary shoppers.

Target, for example, says that 95% of prices for school supplies are at or below last year’s levels.

Retailers begin reporting quarterly earnings next week.

Stephen Yalof, CEO of the outlet mall operator Tanger, noted an increase in foot traffic this summer because of the World Cup festivities.

More Americans were shopping too, Yalof said, because more people are vacationing close to home to save money.

“We’re rewarding with value, and we’re getting customers to come in … and shop more frequently,” Yalof told The Associated Press.