Retail sales accelerated 0.1% m/m in May, up from -0.2% in the prior month, but the y/y pace slowed to 2.3% from 2.7%. The y/y comparison set eases in June but gets slightly tougher from July through September. Alongside other economic data we have highlighted in prior posts, retail sales data from the third quarter could create more uncertainty around the pace and amount of rate cuts from the Federal Reserve by year end.
Source: Macrobond.
On an inflation-adjusted basis, retail sales decelerated further into negative territory to -1.0% y/y from -0.6%. We will be monitoring this closely as we move through the second half of the year given its implications for broader real economic activity.
Source: Macrobond.
Importantly, the Retail Control Group, a series that tends to be a good forward indicator for the direction of consumer spending within the GDP calculation, was flat on a rate of change basis at 3.1% y/y. Since 1993, the direction of the rate of change in y/y growth rates from the Retail Control Group and Headline PCE has moved in tandem 73% of the time.
Source: Macrobond.
While the headline retail sales data slowed in May, the underlying trends in the consumer space mostly remain at levels that would not historically justify rate cuts. We will be focused on how this data develops in 3Q24 as the comparison set gets tougher.
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Investment Strategist
Boyd Watterson Asset Management, LLC