US Retail Sales Stall as Broader Economic Developments Cloud Growth Outlook

A fresh batch of economic data shows that US retail sales stall, raising concerns about consumer spending.

The latest figures also highlight several developments across the broader US economy.

This article covers the key information traders need to stay on top of financial events in the world’s largest economy.

US Retail Sales Stall in December

Despite expectations, US retail sales stall in December, a disappointing result for what is usually a high-spending season. Households held off spending, especially on motor vehicles and other big-ticket items. This could slow economic growth as the new year begins.

This flat reading follows a 0.6% increase in November. The Commerce Department’s Census Bureau published the data on Tuesday. In a Reuters poll, economists had forecast a 0.4% increase in retail sales, which are not adjusted for inflation. Year on year, sales rose 2.4% in December.

There was also a revision to October’s data. The Commerce Department corrected the figures to show a 0.2% decline instead of the previously estimated 0.1%.

The suspected culprit is consumer fatigue. Cost-of-living challenges remain a major issue and are partly linked to price increases tied to Donald Trump’s tariff policy.

“Overall, signs of earlier consumer strength may be starting to falter, in line with gloomy sentiment indicators and a falling saving rate,” noted Capital Economics’ North America economist Thomas Ryan. “That said, as bigger rebate checks begin to flow, consumption at the end of the first quarter may turn out much stronger than it currently looks.”

Business Inventory Growth Disappoints

Business inventories grew more slowly than expected in the November report, which the prior US government shutdown delayed, as US retail sales stall. Inventories rose 0.1%, below the 0.2% increase forecast in a Reuters poll of economists. This follows a 0.2% gain in October. Inventories remain a volatile but crucial part of GDP calculations.

Retail inventories showed a notable stall. They fell 0.1% in November after 0.5% growth in October. Motor vehicle inventories dropped even more, falling 0.9% after a 1.0% increase in October.

Wholesale inventories grew 0.2%, while manufacturer stock increased 0.1%.

Slower business inventory growth may weigh on total US GDP expansion. Inventories have declined for two quarters, but a shrinking trade deficit supported the overall economy during that period. The Atlanta Federal Reserve now forecasts fourth-quarter GDP growth at a more modest 4.2% annualised rate, down from 4.4% in Q3.

Weak inventory growth, combined with the fact that US retail sales stall, may create additional challenges for economic growth as data moves into 2026.

New Trade Deal With India

Last week on Monday, Donald Trump announced that the US has signed a new trade deal with India.

This follows Europe’s agreement with New Delhi and new deals involving China and Canada, as US retail sales stall.

The rush may indicate an eagerness to repair the US’s image after the trigger-happy tariff policy left it looking ostracised.

Analysts say the wave of global deals, especially the EU-India pact, may have sped up the US decision to reach its own agreement with New Delhi. Even so, the deal came faster than most expected.

In a Truth Social post, Trump said India would stop purchasing oil from Russia, and would instead buy “over $500 BILLION DOLLARS of U.S. Energy, Technology, Agricultural, Coal, and many other products”.

The deal also includes a general tariff reduction from 25% to 18%. In addition, the 25% tariff imposed as “punishment” for India supplying itself with Russian oil was removed.

Terry Haines, founder of analysis firm Pangaea Policy, noted that this deal was “an emphatic answer to those thinking the EU is flanking or gaining speed on the US on trade”.

Trump Threatens to Block US-Canada Bridge Opening

While the US is forming new deals, it seems to have no trouble squabbling with old allies. Until recently, the US and Canada had a free trade deal, which Donald Trump’s government disrupted by implementing a 25% tariff.

Canada responded with retaliatory tariffs targeting politically and economically sensitive US industries. It also entered trade talks with the EU and China, as US retail sales stall and trade tensions weigh on growth.

This seems to have left a bitter taste in Donald Trump’s mouth. He has threatened to block the opening of the $4.6 billion Gordie Howe International Bridge project. The bridge would connect Detroit, Michigan, with Windsor, Ontario, and has been under construction since 2018.

“I will not allow this bridge to open until the United States is fully compensated for what we have given them. Canada must also treat the United States with the fairness and respect we deserve,” Trump said in a social media post.

Michigan Senator Elissa Slotkin warned that cancelling the deal could have major consequences. “Cancelling this project will have serious repercussions – higher costs for Michigan businesses, less secure supply chains and, ultimately, fewer jobs”, Slotkin said.

According to a University of Michigan study, the bridge would save truckers $2.3 billion over 30 years by cutting 20 minutes from crossing times.

US Dollar Slips, Pushing Gold Upwards

Fuelled by a weaker dollar and lower Treasury yields, gold gained some power, becoming more attractive to international buyers. Spot gold grew by 1.8%, at $5,111.30 per ounce on 11 February.

Meanwhile, the US dollar fell to a near two-week low, weakening in EUR/USD, GBP/USD, USD/JPY，並且 other major pairs.

The benchmark 10-year US Treasury yield also declined to nearly a one-month low, as US retail sales stalled and inventory data failed to meet expectations.

Fed Concerns

The Fed will hold its interest rate policy for the rest of current chair Jerome Powell’s tenure, which ends in May. Rates may be cut soon after, possibly in June, when likely appointee Kevin Warsh takes the seat. A move could come sooner if US retail sales stall and growth concerns increase.

More than 70% of economists have expressed concerns about the Fed’s independence after Powell’s term ends.

They point to Warsh’s rapid shift from a more restrictive stance to a more aggressive cutting strategy, as well as Trump’s influence. Donald Trump has repeatedly criticised Powell for not cutting rates more quickly.

Disclaimer:
This information is not considered investment advice or an investment recommendation, but instead a marketing communication.