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:

1. 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%.

2. 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%.

3. 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.

4. 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.