Weak retail sales data rattles markets, stirs economic slowdown fears

U.S. stocks pulled back from record highs Friday after a government report showed shoppers spent less at retailers last month than the month before, surprising economists who had forecast continued growth. The S&P 500 fell 0.2%, the Dow Jones Industrial Average dropped 107 points, and the Nasdaq composite slid 0.3%, though the S&P 500 still closed out a third straight winning week.

The retail sales slowdown, paired with a weak jobs report the week before, is raising concern that the economy could be cooling even as inflation remains higher than policymakers want. That combination, sometimes called stagflation, leaves the Federal Reserve without an easy fix, since raising interest rates to fight inflation also risks slowing growth further. A softer spending pace could, however, ease pressure on prices and give the Fed room to hold off on rate hikes.

A preliminary University of Michigan survey found consumer sentiment weakening by more than economists expected, with the biggest drops among older Americans, lower-income households and other groups most exposed to inflation. Some analysts cautioned the retail pullback may simply reflect a natural cooling after earlier months were boosted by unusual events such as large tax refunds and a summer online shopping promotion.

Treasury yields rose as oil prices climbed, with the 10-year yield reaching 4.69% amid continued uncertainty over when tanker traffic through the Persian Gulf will fully resume.

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