The US’ nominal retail sales saw a slight increase of 0.1 per cent in May, following a 0.2 per cent decline in April, according to The Conference Board (TCB). Real retail sales, adjusted for inflation, also rose by 0.1 per cent in May after a significant 0.5 per cent decline in April. Despite this modest uptick, real retail sales over the April-May period were down 1.2 per cent annualised from the first quarter (Q1), indicating continued weakness in consumer spending, particularly on goods, in Q2.

Retail control, which excludes volatile sectors such as gasoline, motor vehicles, building material store sales, and food and drinking places, rose by 0.4 per cent in May after a 0.5 per cent decline in the previous month. Sales increased in clothing, sporting goods, general merchandise, non-store retailers, and miscellaneous stores.

The May retail sales data support expectations that real GDP growth continued to slow in Q2 2024, following a modest 1.3 per cent annualised rise in Q1 2024. The Federal Reserve is likely to view these figures as indicative of the economy cooling down, a necessary step to bring inflation back to its 2-per cent target, as per TCB.

Economic indicators suggest that two interest rate cuts are anticipated towards the end of 2024, likely during the November and December meetings. Despite the slight rise in real sales in May, the annualised decline of 1.2 per cent from Q1 highlights a reduction in consumer demand. This trend reflects a broader shift away from spending on goods, driven by slower real wage growth, depleted excess savings, and rising credit card debt. High interest rates, elevated prices, and increasing insurance premiums, particularly for autos, are further dampening goods purchases.

Weaker consumer spending aligns with the Fed’s strategy to cool economic activity and curb inflation without triggering a recession. Projections suggest that Q2 and Q3 real GDP growth will be anaemic, ranging between 0 per cent and 1 per cent quarter-over-quarter annualised. However, a recession remains unlikely as businesses are generally retaining their top talent.

Given the backdrop of slower real GDP growth and inflation, coupled with a relatively healthy labour market, the Fed is expected to cut interest rates twice this year. The cuts are anticipated at the November and December meetings. Although only a slight majority of FOMC participants supported one cut at the June meeting, most are anticipating two cuts by the end of the year.

Fibre2Fashion News Desk (DP)