World Cup Hangover Triggers Retail Sales Slump In July, K-Shaped Economy Waning

Based on BofA's almost omniscient analysts, traders should expect a big disappointment this morning from US retail sales as the bank's data showed a huge drop in online retail (card not present) in July...

...because Prime Day and related promotions were pulled forward from July to June this year. Many other retail categories also saw m/m declines, including clothing, gas (due to lower prices) and furniture. Other factors driving the weakness in July likely included the heat wave around July 4 weekend and a modest post-World-Cup hangover effect.

And once again, BofA was right... US Retail Sales plunged 0.6% MoM in July (+0.1% MoM exp) - the biggest MoM drop since May 2025. This drop slowed the annual rise in retail sales to +5.0% YoY (still solid)...

Interestingly, unadjusted retail sales rose in July...

Both headline and core sales growth slowed YoY...

Most importantly, the 'Control Group' - which plugs directly into GDP calculation - dropped 0.4% MoM (dramatically worse than the +0.3% MoM rise expected).

Additionally, UBS noted that a key risk to the July data was fading support from larger tax refunds compliments of the OBBBA and that could be part of the disappointment today.

Under the hood, it was very mixed. A drop in gasoline station spending makes sense as gas prices dropped (before re-accelerating in August)...

But, the decline in online (non-store) retailer sales stands out...

This was the second biggest MoM drop Nonstore Retailers sales since COVID (likely due to the calendar shift form Prime Day as mentioned above)...

Real retail sales - admittedly roughly adjusted for CPI - remains positive, but slowed significantly in July...

Finally, the The latest BofA data provides additional evidence that K-shaped dynamics are waning. In each of the four weeks ending Aug 1, y/y total BAC card spending growth was stronger among lower- than higher-income HHs.

And this isn’t just due to higher gas prices. Even in discretionary categories, the “K” has turned into a “C” over the last couple of months: lower-income spending looks solid, while higher-income spending has cooled off modestly.