US Consumer Spending Stumbles: Retail Sales Post First Decline Since October 2025

Consumer spending, the engine of the US economy, unexpectedly slammed on the brakes in July, testing the risk appetite of financial markets. According to data from the US Commerce Department, retail sales fell 0.6% month-on-month to $763.6 billion. This figure disappointed economist expectations for a 0.1% increase and marked the first monthly decline recorded since October 2025.

Data Shock and Historic Shift

Market participants and data terminals are interpreting this sharp slowdown as a signal of a cooling in economic activity:

■Retail sales, which had risen by 0.2% in the previous month, saw this trend break in July.

■The unexpected 0.6% drop, contrary to forecasts, exposes the fragility in consumer strength.

■On an annual basis, total sales are still up 5% compared to last year, but the loss of short-term momentum is raising concerns.

Sectoral Divergence: Drop in Gas, Rise in Construction

A closer look at the data reveals a sharp divergence in spending habits. While demand contracted in big-ticket items and energy, certain retail channels maintained their resilience:

■Motor vehicle and parts dealers, gas stations, electronics and appliance stores, and non-store retailers (e-commerce) saw declines in sales.

■Conversely, increases were observed in clothing stores, health and personal care, building materials, garden equipment, and furniture and home furnishings sales.

Markets may perceive this data as a trigger for a new pricing cycle regarding the Fed's interest rate policy. This sharp slowdown in retail could bring rate cut expectations to the forefront in swap markets and trigger an instantaneous exodus of HFT bots from risky assets, increasing volatility in bond yields.