August 14, 2026 – 11:28 (UTC – 4) By Erwan LUCAS Confidence is low, spending is slowing down, and Americans showed multiple signs of doubt on Friday about the strength of the national economy, as the war in the Middle East continues to weigh on inflation.
August 14, 2026 – 11:28 AM (UTC – 4)
By Erwan LUCAS
Confidence is low, consumption is slowing down, and Americans showed multiple signs of doubt on Friday about the strength of the national economy, as the war in the Middle East continues to weigh on inflation.
The morning began with the release of retail sales, which fell significantly in July, reaching $763.6 billion, a drop of 0.6% compared to the previous month.
Over the year, consumption is still looking up, at 5%, but this is mainly explained by the effects of inflation; in volume terms, the increase is only 1.6%.
The yearly average also includes nearly a 20% rise in gas purchases, following the price shock caused by the war in the Middle East.The data released for June already pointed to a sharp slowdown in U.S. consumer spending, which had only increased by 0.2%, a trend confirmed by the revised figures released on Friday.
Analysts were more optimistic, even though they had anticipated another slowdown, expecting a slight rise of 0.1%, according to the consensus published by MarketWatch.
“Spending fell unexpectedly, marking its lowest level in over a year and the largest negative gap versus forecasts since February 2023,” noted Bret Kenwell, U.S. markets analyst for eToro, in a note.
“One month of falling spending doesn’t necessarily mean the economy is on the brink, but it gets harder to ignore this signal when you compare it with disappointing GDP and employment data,” Kenwell added.The University of Michigan’s consumer confidence index, also released on Friday, served as a reminder of a key point: Americans’ confidence in their economy isn’t exactly strong.
According to the report, the index measuring consumer confidence dropped 7.6% in one month, settling at 51 points. The year-over-year decline is even sharper, at 12.4%. And for good reason: economic data in July wasn’t particularly positive.
Good news for the Fed
The job market sent a mixed signal, with unemployment slightly down to 4.1%, despite the loss of 23,000 jobs in a month, and job gains in May and June being halved after revisions.More problematic, the participation of working-age Americans in the labor market has dropped to 61.4%, its lowest level since the late 1970s, if you set aside the temporary shock caused by the Covid-19 pandemic in 2020.
At the same time, growth in the United States was weaker than expected in the second quarter, at a 1.5% annualized pace.
“Retail sales in July were disappointing,” acknowledged Bill Adams, chief economist at Fifth Third Commercial Banks, in a note, “but the details aren’t that negative: the drop in gas station sales is actually good news, since it’s due to falling prices.”
Indeed, if you also set aside gas purchases, whose changes are more volatile due to oil price swings since the beginning of the Middle East war, the decline is only 0.2%.This trend is, however, unevenly distributed: sales in clothing and accessory stores benefit from back-to-school season, which happens in August in the U.S., seeing their sales rise by 1.9%.
The same trend, but weaker, is seen in health and personal care stores (+0.7%).
On the other hand, besides car dealerships and gas stations, online shopping sales have dropped sharply, with a one-month decline of 2.2%, but also in electronics stores (-0.5%), despite the price increases of some devices due to the cost of electronic chips, driven up by the AI boom.
For now, retail sales ‘reduce the likelihood of a Fed rate cut at their next meeting,’ said Mr. Adams, as the economy is not showing signs of overheating.Most markets expect the Federal Reserve’s (Fed) key interest rates to actually stay unchanged at the September meeting, according to CME’s FedWatch tool, but they don’t rule out a hike before the end of the year.
