Retail Sales: The Numbers Don’t Lie, But the Narrative Does

The latest batch of retail sales data reveals a stark contrast between the headlines and the facts. Month-over-month adjusted retail sales are down, but year-over-year numbers tell a very different story. When we look at total retail sales, year over year, we see a 5.2% increase from last July’s $777.6 billion to this July’s $784.6 billion.

Excluding volatile categories like automobiles and gas stations, the growth rate is still respectable at 4.9%. The Census Bureau’s data also shows that consumers tend to spend more in July due to promotional events like Amazon Prime Day.

In contrast, month-over-month spending rose only 0.4% in 2025 but surged 0.9% this year. When adjusted for inflation, retail sales actually increased by a healthy margin of 1.8%.

The way we measure retail sales is at fault here. We need to stop obsessing over month-over-month numbers and focus on the bigger picture.

A Record-Breaking Back-To-School Season

The National Retail Federation’s forecast for back-to-school and college spending is looking more secure than ever, with a projected $146.3 billion added to the retail economy – up 14% from last year. The NRF’s Allison Zeller highlights the importance of this shopping period: “It’s regarded as the last major read we get on the consumer before we head into the winter holidays.”

This means consumers are still willing to spend, and more than ever. The back-to-school season will give clothing and accessories retailers a boost.

The Consumer Sentiment Conundrum

But if retail sales are indeed strong, why is consumer sentiment taking a hit? According to the University of Michigan’s 100-point baseline index, sentiment fell 8% in August to 51 points. It turns out that older consumers, lower-income consumers, and those without a college degree are more concerned about inflation than anyone else.

With real wage growth effectively at zero – thanks to rising prices, especially gasoline – it’s getting harder for the consumer to keep up their spending pace. NRF chief economist Mark Mathews paints a stark picture: “This creates a bit of a situation where it’s hard for the consumer to continue spending more.”

However, he’s not entirely pessimistic. He believes that inflation will soften as the year progresses and wage growth might pick up – albeit slowly.

The Savings Rate Conundrum

Mathews also notes that the current savings rate is nearing record lows at 3% – far below the long-term average of 8.4%. This could present challenges ahead, especially if consumers are forced to dip into their savings or reduce their spending habits.

You might think this is a negative trend, but Mathews views it as a sign that consumers are comfortable enough to spend rather than save for a rainy day. However, he also notes that credit card balances and delinquencies are at near-record levels – although the transition to serious delinquencies has started to ease.

Outlook Ahead

GlobalData’s Neil Saunders remains confident that retail will continue to perform strongly through the holiday season. “The outlook for the remainder of the second half is strong,” he says, echoing Mathews’ sentiments about inflation softening.

This means consumers will have more opportunities to spend – and probably will. The numbers don’t lie: retail sales are up, and consumer spending is still robust. It’s time to stop worrying about the doom-and-gloom headlines and focus on the bigger picture.

And when the dust settles, we might just find that consumers’ appetite for shopping is indeed bigger than their budget – at least for now.