On Thursday, the focus of US markets will shift from inflation to the health of the consumer. Interest rates are biting with a smattering of large companies reporting softening spending, including Home Depot and McDonald’s. Spending so far appears to be hurting most in rate-sensitive spaces but could quickly spread if consumers retrench.
So far the evidence on that is mixed and Apollo this week highlighted largely-steady credit card spending among other signs of a stability.
Here is what’s expected
- Retail sales control group (Jul):
- Expected: 0.1%
- Previous: +0.9%
- Retail sales ex autos (MoM) (Jul):
- Expected: 0.1%
- Previous: 0.4%
- Retail sales (MoM) (Jul):
- Expected: 0.3%
- Previous: 0.0%
The control group is always the main market mover but it’s also worth noting the details. Last month, non-store retailers (Amazon) were up 8.9% y/y and that category will be in focus again as Prime Day fell on July 16-17, though it goes up against the Prime Day comp from 2023 that fell July 11-12.
Weather has also been favorable for spending aside from Hurricane Beryl. It hasn’t been overly hot or stormy in much of the US and discounting has been prevalent.
Clothing is an interesting category at the moment as it rose 0.6% m/m in June and was up 4.3% y/y. That could be a sign of a healthy wallet but could also be sign of a consumer that’s gotten healthier in another way — Ozempic. GLP-1 drugs are re-shaping wardrobes so could be sending a false signal.
On the flipside, food and drinking places along with grocery stores could dragged down by smaller appetites. I wouldn’t expect to see that over any one month but it’s a secular trend that may make the overall signals tougher to read.
Retail sales control group
Going in to the report, I think the market is balanced. The early-August rout has reversed in the biggest four-day rally in stocks since November 2023. There is still likely more work to do but it will be more-dependent on the economy and less-dependent on the outlook for inflation.
While the retail sales report will be the highlight on Thursday, it won’t be the only one. A short time before the data, we will get quarterly results and commentary from Wal-Mart. The world’s largest retailer is often candid about where it sees spending and will surely be queried in the call about trends.
If I was forced to have data on either official retail sales or WMT commentary, I would take WMT, particularly if they highlight any kinds of changes.
John Furner is the CEO of Walmart USA and he said in May consumer spending was “remarkably consistent.”
“I think the best way to describe the consumer is it’s been remarkably consistent over the last couple of years. Mix has changed, but hasn’t changed that much,” he said.
Has that changed? I imagine it has wakened at least partly but shares of Walmart are up 7% since June.
