Retail Sales Rebound Sharply in June, Calming Tariff Jitters and Fueling Market Optimism

Three Key Takeaways:

• Retail sales beat expectations with a 0.6% monthly gain in June, reversing May’s sharp decline and signaling continued consumer resilience.
• Sales were led by a rebound in autos, strength in restaurants, and ongoing momentum in nonstore (e-commerce) retail, while traditional department stores and sporting goods lagged.
• Markets welcomed the surprise upside, with equities rallying toward early session highs on hopes that consumer strength will offset tariff-related inflation concerns.

U.S. consumers returned to spending in June with a force that surprised economists and delighted markets, as retail sales surged 0.6% month-over-month, handily beating the consensus expectation of just 0.1%. The strong report follows a sharp 0.9% drop in May, suggesting that American households remain willing to spend despite growing concerns over tariffs and inflation. Solid gains in key discretionary categories, including car dealerships and restaurants, helped drive the rebound, with broader market indices pushing toward early session highs in response.

The strength was broad-based: retail sales excluding autos rose 0.5%, and even more impressively, sales excluding both autos and gasoline rose 0.6%. Compared to a year earlier, retail and food service sales were up 3.9%, while retail trade alone increased 3.5%. The three-month period from April through June saw a 4.1% gain versus the same stretch a year ago, pointing to sustained momentum. Core retail sales, which strip out volatile categories such as autos, gasoline, building materials, and food services, rose 0.5% in June, another upside surprise versus consensus.

Category-level strength was led by auto and parts dealers, which posted a 1.2% gain, bouncing back from a sharp 3.8% decline in May. That rebound was not unexpected given a rush of purchases earlier in the year ahead of President Trump’s 25% tariff on imported cars and car parts. Still, the return of buyers suggests consumer confidence remains intact. Food services and drinking places, a bellwether for discretionary spending, also grew by 0.6%, indicating that Americans are still dining out despite growing price pressures.

Online retailers—classified as nonstore retailers—posted a 0.4% increase in June and remain one of the top YoY growth categories, up 6.4%. Furniture and home furnishings (+5.7% YoY) and miscellaneous store retailers (+7.4% YoY) also remained strong. In contrast, traditional department stores (-3.1% YoY), general merchandise stores (-1.1%), and sporting goods/hobby/book/music stores (-6.4%) continued to struggle, suggesting a bifurcation between digitally enabled retail and legacy formats.

From a macro perspective, the resilience of retail spending is an encouraging signal, especially as tariffs begin to filter through the economy. Consumer prices rose 0.3% in June and are now up 2.7% YoY—the highest since February—yet inflation-adjusted retail sales still posted a modest 0.3% gain. This highlights that while inflation is eating into real purchasing power, it has not yet meaningfully curtailed nominal consumption.

The broader economic implication is critical. With consumer spending accounting for roughly two-thirds of GDP, any sign of durability in this area acts as a stabilizer amid trade and policy uncertainty. The market took the data in stride, with the S&P 500 and Nasdaq both recovering early losses to approach session highs. The report also alleviated concerns—at least temporarily—that tariffs would immediately weigh on consumer sentiment.

Retailers are now setting their sights on the back-to-school season, the second-largest shopping period of the year. According to Coresight Research, spending is expected to rise 3.3% to $33.3 billion, with shoppers likely to frontload purchases in July to avoid additional price increases tied to the next wave of tariffs. Meanwhile, early data from Adobe Digital Insights showed that Amazon’s recent Prime Day event (along with competitors like Walmart and Target) drove over $24 billion in online spending, a 30% jump from last year. Notably, consumers favored essentials over splurges—an indicator of underlying caution.

Despite strong top-line numbers, there are signs of shifting behavior. Numerator data showed buyers during Prime Day prioritized basics like dish soap and paper products over electronics or apparel. Retailers like Levi Strauss have also begun adjusting their offerings, pulling back on underperforming styles and raising select prices while shifting production out of China to sidestep tariffs.

Deborah Weinswig of Coresight noted that the current retail climate feels healthier than last year’s. “People aren’t buying things they don’t need,” she said, reflecting a more pragmatic consumer mindset. Inventory levels are described as balanced, and promotional activity hasn’t escalated to fire-sale territory—a sign of retailer discipline and stable demand.

As the Federal Reserve digests this mix of strong consumer demand and rising price pressure, the case for immediate rate cuts appears weaker. Chair Jerome Powell has signaled a wait-and-see approach to tariff impacts, and June’s report provides him with some breathing room. Still, with global trade policy in flux and the U.S. economy exposed to the next volley of price hikes, retail sales will remain a critical barometer of household health.

In sum, June’s retail sales report delivered a welcome shot of good news. Consumers are still opening their wallets, even as inflation creeps higher. As long as the labor market holds and confidence remains steady, the American consumer continues to prop up the recovery—tariffs and all.

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