Latest / Markets with Megan: A Quick Financial Markets Update / Could Strong Retail Sales Delay Fed Rate Cuts? | S2 E058 | 07-17-25

Transcript

Could Strong Retail Sales Delay Fed Rate Cuts? | S2 E058 | 07-17-25 · Markets with Megan: A Quick Financial Markets Update

• 0:00
  Megan Horneman: That consumer really likes to surprise us with economic data.
• 0:03
  Megan Horneman: It's Thursday, July the 17th, and this is Markets with Megan.
• 0:06
  Megan Horneman: If you like this podcast, please subscribe.
• 0:09
  Megan Horneman: You can hit that alarm bell, share it with friends, family or colleagues.
• 0:12
  Megan Horneman: But we're here today to go over our economic data, like we do typically, and specifically those that can be market moving.
• 0:19
  Megan Horneman: Now, since the consumer makes up the majority of GDP, we do really look at some of the consumer spending information that we get on a monthly basis, and this morning we saw the retail sales report for the month of June.
• 0:32
  Megan Horneman: This report can be volatile in some instances and we saw that today.
• 0:37
  Megan Horneman: Well far surpassed the expectations from economists.
• 0:42
  Megan Horneman: When you look at retail spending for the month, whether you exclude autos and gas, it came up six-tenths of a percent.
• 0:49
  Megan Horneman: Just to put that in perspective, it was only supposed to be a 0.3 percent, so it basically doubled the expectations.
• 0:55
  Megan Horneman: And when you look at what we focus on, what's called the control group and this is where we focus this excludes all of those volatile items food, energy, gas, building materials.
• 1:08
  Megan Horneman: These are the things that can be quite volatile, seasonal and also subject to some price moves.
• 1:13
  Megan Horneman: So we exclude those out and the retail sales control group was up five-tenths Now.
• 1:19
  Megan Horneman: That was on the back of a slightly modestly downward revision to the prior month, where it rose two tenths of a percent, but still beat expectations solidly here for the month.
• 1:31
  Megan Horneman: Now this is great.
• 1:33
  Megan Horneman: The markets have liked it.
• 1:34
  Megan Horneman: You've seen short term interest rates move a little bit higher because now we're starting to move into the first Fed rate cut, possibly being in December instead of September.
• 1:45
  Megan Horneman: Move into the first Fed rate cut, possibly being in December instead of September.
• 1:49
  Megan Horneman: Now we dug this apart, though, because this is shocking to us how resilient this consumer continues to come.
• 1:52
  Megan Horneman: The most important thing about this report is to remember that these numbers are not inflationary adjusted.
• 1:59
  Megan Horneman: So if you go to buy a carton of eggs last month and you go this month and buy that same exact carton, but it's more expensive, that looks like there was more buying of the carton of eggs, but it wasn't more buying.
• 2:13
  Megan Horneman: It was the same amount, just a higher price.
• 2:15
  Megan Horneman: It's extraordinarily difficult and nearly impossible to separate out in this report what is inflationary and what's an actual increase in the sales.
• 2:26
  Megan Horneman: That's where we rely on earning season.
• 2:29
  Megan Horneman: What are the companies telling us?
• 2:30
  Megan Horneman: What are they actually reporting?
• 2:31
  Megan Horneman: That's when we look at some of the consumer confidence numbers, business confidence numbers these all have been very weak and are historically correlated to consumer spending.
• 2:41
  Megan Horneman: So we're starting to get a little worried that some of this may be inflationary and showing up from the tariffs before we see it in those headline inflation numbers that we get on a monthly basis.
• 2:50
  Megan Horneman: And why do we say that?
• 2:52
  Megan Horneman: Because let's look at what drove these numbers higher for the month.
• 2:55
  Megan Horneman: When you look at this motor vehicles and parts again could that be tariff-related Food and beverage, general merchandise, apparel.
• 3:05
  Megan Horneman: When you look at eating and drinking at restaurants, could that be service related inflation or a part of that food inflation as well.
• 3:14
  Megan Horneman: These are the things.
• 3:15
  Megan Horneman: When we look at general merchandise, as I mentioned, apparel, these things that we're looking at importing into the US are these factors being driven because of higher prices and will we see that coming out in the Consumer Price Index?
• 3:29
  Megan Horneman: We're not quite sure yet.
• 3:30
  Megan Horneman: It's too early to tell.
• 3:31
  Megan Horneman: Again, this is what we get out of this Markets with Megan is we dig apart the details of these reports.
• 3:37
  Megan Horneman: Now what do we think from a market-related expectation?
• 3:40
  Megan Horneman: We think this pushes the Fed off.
• 3:41
  Megan Horneman: We don't think there's enough evidence for the Fed to want to cut interest rates.
• 3:45
  Megan Horneman: In September we had been a 50-50 chance.
• 3:47
  Megan Horneman: We think that that now is much higher likelihood.
• 3:50
  Megan Horneman: They'll wait until the December meeting.
• 3:53
  Megan Horneman: That's all we have today.
• 3:54
  Megan Horneman: If you like this podcast, you can get a history of it at marketswithmeganfm.
• 3:58
  Megan Horneman: Thank you.