The news: US retail sales advanced in July as consumers took advantage of major sales events. However, signs are emerging that consumers are becoming more pessimistic as inflation expectations rise.

• The University of Michigan’s sentiment tracker decreased in August for the first time in four months. That index fell 5% from July and was down 13.7% YoY.
• Inflation expectations for the year ahead rose to 4.9% this month from 4.5% in July.

Fears for future: With the Trump administration’s import tariffs coming into clearer focus, US consumers have rising concerns about their buying power. Though they are no longer preparing for the worst tariffs announced in April, “consumers continue to expect both inflation and unemployment to deteriorate,” Michigan survey director Joanne Hsu wrote in Friday’s sentiment report.

Other reports last week suggest the concern about price increases is rooted in reality.

• Last week’s CPI report showed that a key inflation gauge excluding food and energy prices picked up in July.
• The latest producer price index (PPI) revealed wholesale inflation rose 0.9% last month, the biggest jump in three years.

Summer of sales: The latest retail sales report shows consumers were receptive to big promotional events. July included Amazon’s four-day Prime Day and competing discounts from Walmart, Target, and other chains.

• Retail sales rose 0.5% MoM and 3.9% YoY last month, the Commerce Department reported on Friday.
• While sales in the cars and home furnishings categories both gained more than 1% from June, sales at clothing, sporting goods, and health and personal care stores also picked up.

Our take: With pressure from rising food prices, higher housing costs, and uncertainty about higher tariffs, consumers remain cost-conscious—and are wary about what’s ahead. Still, it’s clear that they’re willing to spend when they see clear value, providing a roadmap for retailers to capture sales.

• Brinker’s Chili’s chain and McDonald’s reported quarterly results that showed consumers responding to meal deals.
• Strong results from apparel companies like On Running suggest shoppers will pay up for higher-priced goods that offer quality and innovation.

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