USD Slips Lower As US Consumer Weakens on High FED Rates

The USD is slipping lower after the US retail sales report for May presents a mixed picture, with headline figures and ex-auto sales falling short of expectations, while the control group met forecasts. The softer numbers are weighing on the US dollar and stock markets as well, so the “bad news is good news” mode is not working anymore, reflecting concerns about the strength of consumer spending and its implications for the overall US economy. Traders will continue to monitor upcoming economic releases, as the NY Fed president Williams said on his interview on FOXNews.

US consumer feeling the heat from elevated interest rates

Currently the USD is experiencing selling pressure after the soft numbers showing that the US consumer is feeling the pressure form elevated interest rates. This is likely in response to the weaker-than-expected retail sales data, which suggests slower consumer spending growth. Interpreting the weak retail sales data as a signal that inflation concerns are diminishing.

Bond prices are likely rising (yields falling) as investors shift focus towards economic growth prospects rather than inflation worries. Despite the weaker retail sales, six Fed officials are scheduled to speak today. Expectations are that they will continue to express concerns about inflation, even as the market sentiment shifts towards growth considerations.

The US Retail Sales Report for May 2024

  • Headline Figure: The retail sales figure of +0.1% came in below the expected +0.3%, indicating weaker-than-anticipated consumer spending.
  • Ex-Auto Sales: Fell by -0.1%, which was below the forecasted +0.2%, suggesting a broader weakness in consumer spending excluding the volatile auto sector.
  • Control Group: Met expectations at +0.4%, providing a positive note, as this measure is closely watched for GDP calculations.
  • Ex-Auto and Gas Sales: Showed a modest increase of +0.1%, better than the prior month’s decline but still reflecting subdued consumer spending.

Breakdown of US May Retail Sales Data by Category:

  1. Motor Vehicles: +0.8% month-over-month (m/m)
    • This sector showed strong performance, contributing positively to the overall retail sales figures.
  2. Furniture: -1.1% m/m
    • There was a notable decline in furniture sales, indicating weaker consumer demand in this discretionary spending category.
  3. Electronics: +0.4% m/m
    • Electronics sales saw a modest increase, reflecting stable demand in this segment.
  4. Building Materials: -0.8% m/m
    • Sales of building materials dropped, which could indicate a slowdown in home improvement activities or construction-related spending.
  5. Food and Beverage Stores: -0.2% m/m
    • A slight decline in sales for food and beverage stores suggests steady but slightly reduced consumer spending on essentials.
  6. Gasoline Stations: -2.2% m/m
    • The significant decrease in sales at gasoline stations can be attributed to falling gas prices, which impacts the nominal sales figures.
  7. Clothing: +0.9% m/m
    • Clothing sales increased, indicating a rebound in consumer spending on apparel.
  8. General Merchandise Stores: +0.1% m/m
    • Sales at general merchandise stores edged up slightly, showing stable but subdued growth.
  9. Nonstore Retailers (Online): +0.8% m/m
    • Online retailers continued to perform well, reflecting the ongoing strength of e-commerce.

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Skerdian Meta
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Skerdian Meta Lead Analyst. Skerdian is a professional Forex trader and a market analyst. He has been actively engaged in market analysis for the past 11 years. Before becoming our head analyst, Skerdian served as a trader and market analyst in Saxo Bank's local branch, Aksioner. Skerdian specialized in experimenting with developing models and hands-on trading. Skerdian has a masters degree in finance and investment.
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