Sales Surprises – Retail Sales Figures Persist
After reports of slowing inflation and a continuation of higher rates, the American consumer showed no signs of stopping throughout the month of May. Retail sales, which had grown previously in April by 0.4%, were forecasted to fall by a tenth of a percent throughout May. However, the figures report a complete reversal of thought, with another increasing period of 0.3%. The news seemed to help forgo any recessionary worries for the time being as consumers continue to stay resilient despite the highest federal funds rate in the past 15 years. The majority of the growth seemed to reflect advancements made in the labor market, with robust hiring and increasing wages contributing to higher incomes in the aggregate.
Although generally considered positive news, the strong consumer data does present challenges that the Federal Reserve will encounter in combating inflation. Higher retail sales translate to higher economic movement, which leads to the price growth that fuels inflation. With the recent decision of a pause in interest rates, the Fed maintains a strong commitment to lower interest rates and keeps favorable probabilities of a rate hike in July. Today, the European Central Bank announced a 25-basis point raise to combat consumer spending, establishing rates that are the highest in 22 years. Despite the global steady deceleration of inflation, high consumer sentiment persisting in both the labor and consumer markets have generated uncertainty that must be faced. Furthermore, higher rates coupled with higher spending can lead to the ever so growing number of credit debt, which is on track to break $1 billion nationwide. As more economic data releases, investors should pay close attention to any figures that can be attributable to the consumer, as all action taken by the Fed will be dictated by American’s willingness to spend.
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I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.