The Fed and markets get mixed retail statistics from May sales
The latest US retail sales figure for May is being watched as the Federal Reserve begins its two-day policy meeting. This report comes as the central bank balances inflation and weakening consumer demand. With high interest rates and a declining GDP, this report could reveal household spending strength and Fed policy.
With the control group under the limelight, the Fed is precarious
Retail sales’ control group, which removes noise from gas, vehicles, restaurants, and building materials, is still the best approach to evaluate genuine consumption. This information may calm or worry. May is predicted to gain 0.3%, a minor recovery from April’s 0.2% decline. The U.S. Bureau of Economic Analysis believes this group of retail sales is directly tied to GDP estimates; therefore, it’s a solid indicator of the economy’s future.
Recent developments indicate greater caution. Restaurant and bar sales fell 1.5% in April, the sharpest decline since early 2024, indicating that middle-class families are cutting spending. Despite rising earnings, the University of Michigan’s Consumer Sentiment Index showed less optimism. People worry more about rising prices and job insecurity.
Durable goods cooling reduces March tariff rise
Most individuals bought automobiles and products in March because they expected tariffs to rise. But the surge was brief. Car and truck sales declined 0.1% in April and are expected to dip again in May. Ford and General Motors have reported fewer showroom traffic this year than last.
Retraction could affect other things greatly. In recent earnings calls, Target, Best Buy, and others reported fewer people are shopping and spending less on non-essentials. They attribute this to inflation fatigue and consumer cutbacks.
GDP problems and policy implications
According to the Atlanta Fed’s GDPNow model, second-quarter growth could decline 2.1%. Real personal consumption, which rose 3.1% in the first quarter, is predicted to plummet to 1.1% by year’s end. Because interest rates are high and inflation is over target, the Fed has few policy options. The CME FedWatch Tool (link) demonstrates that market players are pricing in a high possibility of rate stability.
If May’s control group disappoints, stock, bond, and currency markets may get volatile. The bigger question is whether this is the start of a long-term spending slowdown or merely a slip in a weak economy.
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