On Thursday, the focus of U.S. markets will shift from inflation to consumer health. Interest rates are starting to weigh on the market as a number of major companies, including Home Depot and McDonald’s, announce spending cuts. Spending so far appears to have been hit hardest in interest-rate sensitive areas, but it could spread quickly if consumers cut back.
So far, the evidence has been mixed, with Apollo this week highlighting largely flat spending on credit cards among other signs of stability.
This is what is expected.
- Retail Sales Monitoring Group (July):
- Expected: 0.1%
- Previous: +0.9%
- Retail Sales Excluding Automobiles (MoM) (July):
- Expected: 0.1%
- Previous: 0.4%
- Retail Sales (MoM) (July):
- Expected: 0.3%
- Previous: 0.0%
The control group is always the main driver of the market, but it’s also worth noting the details. Last month, non-store retailer (Amazon) sales rose 8.9% year-over-year, and this category will be in focus again as Prime Day arrives on July 16-17, though it competes with Prime Day 2023, which fell on July 11-12.
The weather was also good for spending, with the exception of Hurricane Beryl. It wasn’t excessively hot or windy in most parts of the United States, and sales were widespread.
Apparel is an interesting category right now, up 0.6% m/m in June and 4.3% y/y. This could be a sign of a healthy wallet but it could also be a sign that consumers are getting healthier in another way — Ozempic. GLP-1 drugs are reshaping wardrobes so it could be sending the wrong signal.
On the flip side, food and beverage sales, along with grocery stores, may decline due to lower consumer appetite. I don’t expect this to be a one-month trend, but it’s a long-term trend that could make reading the overall signals more difficult.
Retail Sales Monitoring Group
Coming to the report, I think the market is balanced. The early August slide in stocks has been reversed in the biggest four-day rally since November 2023. There is likely to be more work to be done, but it will depend more on the economy and less on inflation expectations.
While the retail sales report will be the highlight of Thursday’s news, it won’t be the only one. Shortly before the data, we’ll get quarterly results and comments from Walmart. The world’s largest retailer is often candid about where it sees spending, and it’s sure to be asked on the call about trends.
If I had to get data on either official retail sales or WMT commentary, I would choose WMT, especially if it highlighted any kind of change.
Walmart U.S. CEO John Furner said consumer spending in May was “remarkably consistent.”
“I think the best way to describe the consumer is that it has been remarkably flat over the last couple of years. The mix has changed, but it hasn’t changed much,” he said.
Has that changed? I imagine things have at least partially recovered, but Walmart shares are up 7% since June.