June Retail Sales Steady Month-on-Month... New York Stock Market Rises
U.S. retail sales exceeded market expectations last month. This is interpreted as a sign that the U.S. economy is still holding up despite high interest rates and signs of a cooling labor market, raising hopes for a soft landing and driving the stock market upward.
According to the U.S. Department of Commerce on the 16th (local time), retail sales in June were recorded at $704.3 billion, remaining flat compared to the previous month ($704.5 billion).
Initially, the market had expected retail sales to have decreased by 0.3% last month, but the actual figure surpassed expectations. In May, retail sales had increased by 0.3%.
Retail sales excluding automobiles and gasoline rose by 0.8%, marking the largest increase since 2023. This significantly exceeded both expert forecasts (0.2%) and the May figure (0.3%).
Among the 13 retail sales categories, only three showed a decline. Consumption decreased in jewelry (-3%), automobile and parts dealers (-2%), and sporting goods, music, and bookstores (-0.1%). On the other hand, consumption increased in e-commerce (1.9%), building materials, garden equipment, and supply dealers (1.4%), and health and personal care stores (0.9%).
This contrasts with the recent trend of slowing consumption due to high interest rates and a cooling labor market. It is interpreted as a sign that the U.S. economy is still holding up amid growing expectations for a Federal Reserve interest rate cut in September. Consumption accounts for two-thirds of the U.S. real economy.
Lubila Faruki, Chief U.S. Economist at High Frequency Economics, stated, "Consumption and economic activity have slowed considerably so far this year," but added, "The situation has not weakened enough to be considered a recession." She further predicted, "The combination of improved spending, growth indicators, and inflation indicators is likely to support monetary policy easing."
As a result, the New York stock market is rising. As of 9:56 a.m. on the day, the Dow Jones Industrial Average on the New York Stock Exchange (NYSE) was up 0.97% compared to the previous trading day. The S&P 500 and Nasdaq indices rose by 0.35% and 0.18%, respectively.
Investors are taking the better-than-expected retail sales data as confirmation of a rate cut in September. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds futures market is currently pricing in a 100% probability that the Fed will cut interest rates by at least 0.25 percentage points at the September Federal Open Market Committee (FOMC) meeting, up from 61.5% the previous day. The probability of a rate cut of 0.5 percentage points or more in November is priced at 64.5%, and the probability of a 0.75 percentage point or more cut in December is priced at 57.7%.
U.S. Treasury yields are slightly down. The 10-year U.S. Treasury yield, a global bond yield benchmark, is trading at around 4.2%, down 2 basis points (1 bp = 0.01 percentage points) from the previous trading day. The 2-year U.S. Treasury yield, which is sensitive to monetary policy, is trading at around 4.46%, unchanged from the previous day.
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