US Consumption Shock: Data Upending Fed's Rate Strategy

The vital artery of the US economy, consumer spending, slowed sharply in July against expectations, reigniting recession fears in financial markets and increasing uncertainty regarding the Federal Reserve's policy path. According to data from the US Department of Commerce, retail sales took a significant hit month-over-month, marking the sharpest decline since October 2025.

Data Set Falls Short of Forecasts

Closely monitored by economy managers and market analysts, retail sales fell by 0.6% in July compared to the previous month, retreating to $763.6 billion. Coming in an environment where markets predicted a 0.1% increase, this data clearly revealed the fragility in consumer confidence.

■Monthly decline in retail sales: 0.6%

■Market expectation: 0.1% increase

■Previous month (June) change: 0.2% increase

■Date of last decline: October 2025

Sectoral Divergence and Annual Picture

When delving into the details, it is evident that spending patterns followed a rather weak course across sectors. While declines in high-volume items pulled the total data down, vitality was preserved in some niche sectors. Viewed on an annual basis, consumption spending is still in the growth zone, but momentum is clearly lost.

■Declining Sectors: Non-store retailers, motor vehicle and parts dealers, gas stations, and electronics and appliance stores.

■Rising Sectors: Clothing stores, health and personal care, building materials, garden equipment, and furniture and home furnishings.

■Annual growth: 5%

Consumption data tracked in our technical and quantitative models increases volatility in US 10-year bond yields, momentarily dampening risk appetite. This negative deviation seen in the Ichimoku clouds strengthens the possibility of the Fed softening its hawkish stance in the September meeting. Regarding foreign inflows into the BIST 100 index, this data could create short-term upward pressure on the dollar; however, permanent losses below the $763.6 billion level could trigger global risk premiums upwards.