U.S. retail sales fell by 0.2% month-over-month in January, marking a return to negative territory for the first time since October 2025, though the figure was slightly better than the market forecast of a 0.3% decline. Core retail sales, which exclude certain categories, were unchanged from the previous month, matching expectations and the prior reading. The decline in retail spending during January was attributed to subdued consumer confidence and severe winter weather affecting various parts of the country.

Retail spending plays a critical role in the U.S. economy, with consumer expenditure accounting for a significant portion of overall economic activity. Sustained weakness or a downturn in consumer spending poses a threat to economic growth, as household consumption contributes approximately two-thirds to economic expansion. The January decrease was primarily driven by weakness in automobile dealerships, with 7 out of 13 retail categories reporting declines. Auto sales dropped by 0.9%, while revenues at clothing stores, gasoline stations, and health and personal care stores also fell.

Overall retail spending at the start of the year remained modest, accompanied by ongoing concerns about the job market and cost of living. While affluent households continue to have capacity for discretionary purchases, middle- and lower-income consumers are likely becoming more cautious. Separate data released on Friday indicated an unexpected cooling in the U.S. labor market. The unemployment rate rose to 4.4% in February, the highest level since December 2025, and slightly above market expectations of 4.3%. Additionally, seasonally adjusted non-farm payrolls decreased by 92,000, marking a second consecutive month of negative growth after October 2025 and contrasting sharply with market expectations for an increase of 59,000 jobs.

Walmart Inc., often viewed as an economic bellwether, last month projected that its annual profit growth would fall short of expectations due to subdued U.S. employment conditions. Meanwhile, Home Depot Inc. and Lowe's Companies Inc. noted that consumer concerns about the economy persist, adding that they do not anticipate tax refunds translating into increased home improvement spending. Within the retail report, the only service category—restaurants and bars—saw revenue decline by 0.2% in January. Several restaurant chains, including Sweetgreen Inc. and Chipotle Mexican Grill Inc., reported that sub-freezing temperatures and winter storms hampered sales.

Following the data releases, traders increased bets that the Federal Reserve will implement at least one interest rate cut in 2026. The U.S. dollar index dropped more than 20 points shortly after the report, trading at 99.14. Spot gold surged over $40 to $5,112 per ounce, while spot silver climbed $1.60 to $83.85 per ounce. According to the latest market pricing, the Fed may potentially cut rates as early as June. Earlier government data indicated a reduction in U.S. employment last month. A global surge in oil prices, driven by conflict in Iran, has raised concerns about a further increase in inflation, which already remains above the Fed's 2% target.

In the minutes leading up to the jobs report, traders had priced in only a 35% probability of a June rate cut. However, following the release, expectations for a June cut quickly rose to approximately 50%.