The data dragged down consumer staples as well as the financials sector, which was hit by a jump in expectations that the Federal Reserve would cut key lending rates by the end of the year. "The data was much worse than expectations...It is creating a risk to outlook from some of these companies in more cyclical areas like retail," said Hugo Rogers, chief investment strategist at Deltec in Nassau, Bahamas.
The numbers came ahead of earnings from big box retailers such as Walmart Inc next week, and PepsiCo Inc due on Friday.
Coca-Cola Co tumbled 7.5 percent after the world's largest beverage company forecast slowing sales in 2019 and lower demand for its fizzy sodas in some markets. The drop also weighed on the S&P consumer staples, which declined 0.93 percent.
The US-China trade talks entered a higher level in Beijing, with the top two US negotiators scheduled to meet with Chinese President Xi Jinping on Friday. There has been no decision to extend a March 1 deadline for a deal, White House economic adviser Larry Kudlow said.
"Trade is a genuine concern for investors in the stock market, especially those investing in large caps because it's a roadblock to earnings," said Rick Meckler, partner at Cherry Lane Investments in New Vernon, New Jersey.
The technology sector rose 0.31 percent, helped by gains in Apple Inc, with chipmakers, which get a large portion of their revenue from China, also rising.
At 12:56 p.m. ET, the Dow Jones Industrial Average was down 40.24 points, or 0.16 percent, at 25,503.03. The S&P 500 was down 0.98 points, or 0.04 percent, at 2,752.05 and the Nasdaq Composite was up 21.89 points, or 0.29 percent, at 7,442.26.
Cisco Systems Inc rose 3.1 percent, after the network gear maker's earnings beat estimates, driven by strength in its newer applications and security businesses.