Consumer spending is one of the leading indicators for the overall economic activity in the U.S. As a matter of fact, all focus at the moment is on consumer spending, whereby a battle is taking place between the Federal Reserve and consumers.
With higher consumer demand comes higher prices, leading to overall inflation. The mystery lies in whether the Federal Reserve will still be able to fight inflation by increasing rates, without affecting consumer behavior and spending.
Figure 1: Retails Sales U.S.,2022-2023, Source: Fair Economy
Recent data shows a volatile change in Retail Sales for the past year, with an annual peak taking place in February 2023, followed by 2 negative readings of -0.4% and -1% during March and April. Consumer behavior shifted completely to positive readings of 0.4% and 0.3% between May and June.
This fluctuation shows an abnormal spending trend that might be vulnerable to sudden changes in economic activity.
Now taking a look at the current values and expectations, Retail Sales are anticipated to increase from the previous reading of 0.3% to 0.5%, along with a higher expectation for Core Retail Sales from 0.1% to 0.4%.
Such readings or higher will still give more power to the Federal Reserve to further attack inflation through further rate hikes. This might motivate greenback traders to engage as further rate hikes could lead to a stronger dollar.
On the other hand, a big miss in Retail Sales would mean that the Fed’s aggressiveness is affecting consumer’s overall activity. This might be a catalyst for equity traders/investors, as a closer peak in rate hikes would be anticipated.
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