One thing moving markets 

… is lagging retail sales that could point to a spending slowdown, with the latest report ringing up relatively flat, lifting just 0.1%, and April's sales coming in lower than expected with a decline of 0.2%.¹ 

The retail rundown 

The most widely referenced consumer spending data is the U.S. Census Bureau’s retail sales. This report measures the total revenue generated from goods and services sold to individual consumers every month, including store and online sales from more than a dozen retail sectors. 

In May, the categories of stores registering the sharpest declines were gas stations (2.2%) — likely depressed by falling gas prices — as well as furniture retailers (1.1%). Meanwhile, smaller purchases like books, sports equipment, and musical instruments saw a notable surge (2.8%). 

Through 2023, retail sales remained strong, keeping the economy resilient amidst persistent inflation. This, in turn, encouraged the Federal Reserve to hike the federal funds rate to a multi-decade high and hold it there. That combination of inflation and expensive borrowing has put notable pressure on many U.S. households. But it hasn’t stopped consumers from spending or provided the Fed a good reason to loosen its policy — perhaps, not until now.

Recently, sales have shown signs of slowing. Tracking with the data at the national level, Empower Personal Dashboard^TM anonymized data indicates that spending in May declined more than 6% year-over-year, dropping from $5,105 to $4,785 per person on average.

Retail sales have only exceeded 0.1% in three of the last eight months. But while the headline figures seem to show a sharp slowdown, other metrics paint a mixed picture spending habits. 

The Redbook rebuttal 

In addition to core retail sales, the Johnson Redbook suggests the slowdown in consumer spending is not as broad as it may seem. This sales-weighted index for annual same-store sales at U.S. retailers is released every Tuesday and represents about 9,000 stores, equivalent to more than 80% of official retail sales collected by the Department of Commerce.² Simply put, the Redbook tells us a lot about consumer trends and spending habits. 

For the week ended June 8, the Redbook showed same-store sales grew 5.5%, notably higher than the average of 3.61% from 2005 to 2024. This strength has been an ongoing trend: The Redbook hasn’t registered a negative print since the week ended July 25, 2023.³ It only continued to accelerate in the most recent reading. For the week ending June 15, the Redbook increased by 5.9%.  

Consumer and economic impact 

These two metrics tell conflicting stories about consumer spending. So what are the consumers themselves saying?

Last Friday, consumer sentiment for June from the University of Michigan was virtually unchanged from the previous month. However, households’ assessment of their personal finances did decline over growing concerns about higher prices and incomes.⁴ This suggests consumers are increasingly cautious about their spending decisions as the pressure of inflation and high interest rates catch up with household budgets.

There is an optimistic reading of this anomaly: The slowdown in the Census Bureau’s retail sales will no doubt be encouraging to the Fed, and may usher in relief in the form of rate cuts before year’s end. At the same time, the Redbook reports suggest the broader downtrend isn’t cutting discretionary spending out of households’ budgets entirely, which could keep the economy from tipping into contraction in the meantime. 

Subtle easing in consumer spending could bring the economy into better balance. 

And a few top headlines 

According to the Treasury and IRS, Americans have saved $1 billion in 2024 so far via electric vehicle tax credits.⁵ 

• Before this year, consumers had to wait until filing their tax return to receive credits, but a new provision allows purchasers to claim their discounts at the point of sale — $7,500 and $4,000 for new and used EVs, respectively. 

The Federal Reserve released its quarterly economic projections, which showed members projecting just one interest rate cut in 2024.⁶ 

• The new estimates weren’t a big surprise given inflation’s recent persistence, but it is a downward revision from previous projections of three cuts in 2024. Markets are now pricing a roughly 65% chance of a cut this September, per CME’s FedWatch Tool.⁷ 

U.S. corporate cash increased 12.6% year-over-year in the first quarter to a record high of $4.11 trillion, boosted by returns from money-market funds and time deposits.⁸ 

• Higher rates and the resilience of the U.S. economy have helped companies build their cash holdings — and encouraged companies to hold onto them, as a buffer against downturns that could prevent job cuts or boost future investment.

Roughly 1 in 5 new homeowners consider home improvement costs the biggest surprise in their first six months of ownership.⁹ 

• 2023 data from Zillow and Thumbtack found that homeowners pay an average of more than $6,400 per year in home maintenance costs.¹⁰

What to be on the lookout for next week 

Durable goods orders for May will be released on Thursday, June 27. 

This category of goods encompasses products meant to last at least three years and generally carry a higher ticket price. Strong demand for these goods can be indicative of strong consumer demand overall, as people tend to forgo big-ticket purchases when budgets are squeezed. 

In April, orders defied market expectations of a 0.8% decline with a 0.7% increase, marking the third-straight month of advances.¹¹ The increase was largely driven by new orders for transportation equipment but signaled resilient demand from manufacturers. This ongoing strength provides another intriguing counterbalance to the spending slowdown signaled by first-quarter GDP and the latest retail sales.  
 
However, it’s the totality of data that matters, and this month’s figures could be telling. Since this report measures orders placed with manufacturers, it often takes some time for trends in durable goods to be reflected in consumer spending data. A fourth straight month of advances could be indicative of a coming turnaround in spending, while a decline in new orders could imply durable goods, too, are cooling off.