Synopsis:
CIBC interprets the latest US retail sales data as supportive of their expectation for the Federal Reserve to cut rates in September. The lower-than-expected retail sales growth in May, along with downward revisions for April, signals a cooling consumer demand that aligns with the Fed's goal of rebalancing the economy.
Key Points:
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Retail Sales Data:
- Total retail sales in May rose by only 0.1%, missing the expected 0.3% gain.
- April's retail sales growth was revised down from -0.2% to -0.4%.
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Control Group Performance:
- The control group, which contributes to non-auto core goods consumption in GDP, increased by 0.4% in May, slightly below the 0.5% expectation.
- April's control group figure was revised down to -0.5% from an initial estimate of -0.3%.
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Consumer Spending Trends:
- The data indicates that the strong consumer spending observed in the latter half of 2023 is tapering off.
- This slowdown in consumer spending is a positive development for the Fed, suggesting that economic demand is moderating.
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Implications for Fed Policy:
- The slower pace of consumer spending supports the view that the economy is cooling, aligning with the Fed's objectives for rebalancing.
- CIBC maintains its expectation for the first Fed rate cut to occur in September, given the evidence of reduced demand pressure in the economy.
Conclusion:
The May retail sales data, with its lower-than-expected growth and downward revisions, provides further evidence of a cooling US economy. This aligns with the Federal Reserve's goal of rebalancing demand and supports CIBC's forecast for a Fed rate cut in September. The moderation in consumer spending is seen as a positive indicator for achieving the Fed's economic objectives.