More June Suprises in Economic Reports: Retail Sales Better Than Expected

As Wall Street had predicted a 0.2% decline in June retail sales, today’s report surprised estimates coming in flat m/m. Additionally, May’s sales were revised upward to 0.3% from the previous 0.1%. This positive report shows that while the consumer may be holding off more on spending, they haven’t completely fallen off, fueling the scrutinized “consumer resilience narrative” despite some recent weaker corporate earnings from consumer facing companies.

Last week, the June CPI report was released which surprised by coming in lower than consensus (+0.1%) and reported a m/m decline of 0.1%. This was the first time prices have fallen since the pandemic (July 2022). This decline in CPI helped lower the annual rate of inflation to 3% from 3.3% in May, making a further case for lower rates. Highlights from the report included deceleration in rent and OER toward pre-pandemic levels. Gas, new and used vehicles, and airfares were all notable categories that reported m/m decline in prices. Upon the CPI report, the market also experienced a rotation as small caps, high beta and rate-sensitive pockets of the market rallied, growth and momentum came for sale as the Russell 2000 Index outperformed the Nasdaq by almost 550 bps or 5.5%, making it the second largest move, in over 20 years.