Consumers Spend Big Despite Worried Signals

16 September 2025

Shoppers browse a Walmart Supercenter, in Secaucus, New Jersey, U.S. April 3, 2025. REUTERS/Siddharth Cavale/File Photo

U.S. retail sales surged in August, surprising economists with a 0.6 percent rise over July, marking the third month in a row of solid gains. Core retail sales which strip out volatile items like autos, gasoline, building materials, and food services were even stronger with a 0.7 percent boost. The Commerce Department’s report painted a picture of consumers still willing to spend even as pressures mount.

The gain was broad-based. Clothing store sales jumped 1.0 percent. Sporting goods, musical instruments, book stores and hobby shops saw a 0.8 percent rise. Food and beverage stores posted a 0.3 percent gain, while service stations rose 0.5 percent amid higher gasoline prices. Online retail was a standout performer with a 2.0 percent increase, likely thanks to back-to-school purchases. Electronics and appliance stores saw more modest gains of 0.3 percent. But not all categories benefitted: furniture sellers saw a 0.3 percent drop, and building materials and garden supply retailers showed only a very slight increase of 0.1 percent.

Year-over-year sales rose by 5.0 percent, though part of that reflects inflation and higher prices, especially in goods under tariff exposure. Economists warn that some of the strength may be more nominal than real.

One key takeaway is that consumers are not just spending out of obligation but out of lifestyle demand. Restaurant and bar sales rose 0.7 percent after a dip in July, suggesting people still want to socialize and eat out despite higher living costs. Auto dealerships also saw a 0.5 percent bump, though some of that was likely driven by higher prices and rising costs rather than a big increase in the number of cars sold.

While the headline numbers are upbeat, they don’t erase serious underlying concerns. The labor market is showing signs of strain. Job growth has slowed and unemployment is rising in many sectors. Many workers, especially lower income or younger consumers, are seeing smaller wage gains than expected. Economists are watching for how rising inflation, especially in food, apparel, and energy, will erode consumer buying power.

These mixed signals come just ahead of a highly anticipated Federal Reserve meeting. The Fed is widely expected to cut interest rates by 0.25 percentage points, but given the strength in retail sales, officials may proceed with caution. Retail strength could argue against very aggressive cuts.

Some economists argue sales growth may slow later in the year if labor market weakness intensifies or inflation remains high. Consumer confidence is sensitive to perceptions of job security. Already surveys suggest households are growing more cautious.

In sum U.S. consumers remain resilient. Spending is holding up across many frontlines: apparel, online sales, dining out. That resilience is keeping the economy moving. But it is a fragile posture: rising costs, labor concerns, and inflation could well tip the scales. For now the message for businesses, investors and policymakers is that things look stable but not without risk.