Weak retail sales, souring consumer mood stir stagflation worries

U.S. retailers took in less money last month than the month before, a report showed, surprising economists who had forecast another month of growth in consumer spending. The pullback in spending could ease pressure on inflation, but it also raises concern about a slowing economy.

Some analysts cautioned against reading too much into the weak retail figures. Jennifer Timmerman, senior investment strategy analyst at Wells Fargo Investment Institute, said the drop could simply be a snapback after earlier months were boosted by unusual factors such as large tax refunds, World Cup spending and an earlier Amazon Prime Day event.

A preliminary University of Michigan survey found consumer sentiment weakening by more than economists expected, with declines showing up across the political spectrum and hitting older, lower-income and other groups hardest hit by inflation.

Combined with a surprisingly weak jobs report last week, the data raises the risk of stagflation, a mix of slow growth and high inflation that the Federal Reserve has no simple tool to fix. Shorter-term Treasury yields eased after the retail sales report, a sign traders see the Fed as less likely to raise interest rates at its September meeting.

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