US retail sales slipped last month as elevated interest rates, persistent price hikes and rising credit card delinquencies weighed on households. Retail sales fell a sharp 0.8% month over month (m\/m) in January, the sharpest contraction in 10 months. Sales missed the consensus estimate of -0.1% by a mile and reversed from December\u2019s 0.4% pace of growth. Sales were a bit better when excluding automobiles, with the decline softening to just -0.6%. Excluding gasoline and automobiles, sales dropped 0.5%. The control group, which contributes heavily to the government\u2019s consumption calculation relative to gross domestic product (GDP), fell 0.4%, its largest downswing since March as well.<\/p>\n\n\n\n Transaction weakness was broad-based, with nine out of thirteen categories contracting. Building materials dealers led the free fall with a decline of 4.1%. Other categories and their declines included the following:<\/p>\n\n\n\n Ecommerce, electronics and appliances suppliers, sporting goods destinations and apparel stores also slid but by less than 1%. Offsetting some of the pain were furniture showrooms, which increased 1.5%, dining establishments, which climbed 0.7% and food markets, which increased 0.2%. General merchandise retailers were unchanged.<\/p>\n\n\n\n The trend of layoffs continues to increase, even though initial unemployment claims reported today softened from a week ago. Initial unemployment claims fell to 212,000 for the week ended February 10, missing projections for an unchanged level of 220,000 from the previous week. Continuing claims rose to 1.895 million, however, well above the median forecast of 1.880 million and the previous week\u2019s 1.865 million. Meanwhile, the four-week moving average for both measures rose to 218,500 and 1.871 million from 212,750 and 1.848 million, respectively.<\/p>\n\n\n\n The far reach of inflation was illustrated in global trade last month with the indices for import and export prices rising a sharp 0.8% m\/m despite forecasts expecting near an unchanged pace on both fronts. The following are highlights of m\/m changes from today\u2019s data:<\/p>\n\n\n\n On a sobering note, the \u201cR\u201d word became more prevalent this week with the UK and Japan entering the technical definition of recession\u2014two consecutive quarters of contracting GDP. In the UK, the Office of National Statistics reported that fourth-quarter GDP fell 0.3%, considerably worse than the 0.1% decline anticipated by analysts. In the prior quarter, the UK\u2019s GDP declined 0.1%. The economic malaise is largely viewed as a result of the Bank of England\u2019s restrictive monetary policy. Investors reacted by fully pricing three 25 basis points (bps) cuts this year and placing a 10% likelihood of a fourth cut. In Japan, the country\u2019s ultra-accommodative monetary policy that includes negative interest rates failed to ward off another quarter of economic contraction causing investors to anticipate a delay in the Bank of Japan (BoJ) prospective rate hikes. Anemic domestic demand contributed to the country\u2019s GDP declining at a 0.4% annualized pace in the fourth quarter, which followed a 3.3% decline in the third quarter. The recent contraction was unexpected, with only one of 34 economists surveyed anticipating negative GDP. Prior to the fourth-quarter data release, investors placed a 73% likelihood of the BoJ increasing its key interest rate in April. Investors have since lowered that expectation to 63%.<\/p>\n\n\n\n Layoffs are continuing while guidance from recent earnings reports is disappointing investors as illustrated by the following examples:<\/p>\n\n\n\n Markets are in recovery mode since Tuesday\u2019s selloff on the back of a scorching Consumer Price Index. Today\u2019s data reminds investors that while inflation is gaining momentum, economic growth is showing signs of fatigue. The result is bringing in bond buyers looking to lock in the yields of the day, while motivating equity investors that crave and have learned to love lighter interest rates.<\/p>\n\n\n\n Most US equity indices are higher, led by the 1.3% gain of the rate-sensitive, cyclically tilted Russell 2000 Index. Meanwhile, the Dow Jones Industrial and S&P 500 indices are up 0.4% and 0.2%, respectively. Technology is lagging for a change, with the Nasdaq Composite Index down 0.2%. Sector breadth is impressively positive, with all sectors higher minus technology, which is down 0.3%. The real estate, energy and materials sectors are leading with increases of 1.7%, 1.7% and 1.5%. In fixed-income land, the 2- and 10-year Treasury maturities are trading at 4.57% and 4.24%, with both instruments down 2 bps on the session. The dollar is taking a break on the back of a fierce run and lighter rates, with the greenback\u2019s index down 32 bps to 104.38. The US currency is down against all major currency pairs including the euro, pound sterling, franc, yen, yuan and Aussie and Canadian dollars. Despite a large build in US energy inventories and forecasts of slowing demand, tensions in the Middle East and a lighter dollar are pushing up the price of crude. WTI crude oil is up 1.3%, or $1.01, to $77.50 per barrel. <\/p>\n\n\n\n Today\u2019s data was certainly stagflationary, with consumption weakness in the US, UK and Japan occurring at a time of accelerating global inflation. While market participants yesterday largely dismissed Tuesday\u2019s hot inflation report, significant risks lie ahead. February inflation is already tracking faster than January while we\u2019re seeing recessionary conditions globally amidst a slowing consumer stateside. Significant downside in equities is likely to occur if these developments continue, with inflation keeping central banks at bay while slowing spending weighs on the outlook for revenue growth and EPS as illustrated by recent earnings reports from Cisco and Deere & Co. Higher interest rates, tight central banks and recessions aren\u2019t good for stocks, especially when they\u2019re near all-time highs across all developed markets.<\/p>\n\n\n\n![\"\"](\"\/campus\/wp-content\/uploads\/sites\/2\/2024\/02\/Picture3-4.png\")
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<\/figure>\n\n\n\nLabor Conditions Continue to Soften<\/strong><\/h2>\n\n\n\n
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<\/figure>\n\n\n\nGlobal Trade Prices Climb<\/strong><\/h2>\n\n\n\n
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The UK and Japan Enter Recessions<\/strong><\/h2>\n\n\n\n
Guidance for Cisco and Deere & Co. Miss Expectations<\/strong><\/h2>\n\n\n\n
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Cyclical Stocks Lead Rally<\/strong><\/h2>\n\n\n\n
Stagflationary Data Threaten Potential Soft Landing <\/strong><\/h2>\n\n\n\n