August 11, 2022

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US: Consumer Spending Resilience Declining – Wells Fargo

Data released Friday revealed that retail sales rose 1% in June, beating market expectations by 8%. The data for May also improved. According to analysts at Wells Fargo, retail sales data for June showed customers continue to spend more but receive less in return. They warn that consumer spending on products will not last forever.

Federal Reserve Governor Christopher Waller and St. Louis Fed President James Bullard endorsed a 75 basis point rate hike this month in public speeches on Thursday. “If the data turns out to be much stronger than expected, I will lean towards a bigger increase at the July meeting,” Waller added.

Real consumption of goods should remain moderate to reduce pressure on supply chains and reduce inflation in goods. Ultimately, the Fed wants to slow demand to bring down inflation. However, retail sales remain above pre-pandemic levels in June by more than 6%. Further tightening is expected until demand decreases materially to allow for a reduction in the supply of commodity ‘price’.

“According to retail sales data for June, people pay more but get less. Retail sales rose 1.0% overall in dollars, above expectations. However, we estimate that real retail sales fell 1.0% after applying the inflation adjustment. our own”. In line with our latest forecast, the FOMC will raise interest rates by 100 basis points on July 27.

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