US Retail Sales Data Complicates Already Fraught Fed Calculus
US retail sales rose more than expected in June, key data out Friday showed.
Market participants and Fed officials were watching the numbers for signs of consumer retrenchment in the face of soaring inflation. Instead, the figures suggested Americans are at least a semblance of resilient.
Sales rose 1% last month, just slightly better than the 0.9% consensus expected (figure below), but considering the circumstances, it's probably fair to characterize the headline, and particularly the ex-auto
and the S&P 500 future is trading up almost 1%, go figure that…
I have come to the conclusion that chasing the FOMC and headlines are futile. They are raising rates- 75 or 100 scarcely matters now because they likely have at least one more increase and they can adjust that level anyway. My real fear is that they go so fast that they break the China- but 75 or 100 is very quick either way. This is going to be one of the fastest hiking cycles- given how fast they are raising rates this is going to be a really fast hiking cycle. Housing is in the process of rolling over. Autos, because of a supply problem will likely take longer to give up the ghost but in another few months that will likely change. Once you get consumer durables down due to those sectors, the accelerators go in reverse and the Fed will have gotten their slowdown. The real question is will they be nimble enough to stop hiking before they drive the economy into the ditch? As Albert Edwards has pointed out the time to really fear for risk assets is when the Fed has to cut rates.
Putting my bet down that since the Fed was so late in recognizing that inflation was spiraling beyond transitory, it will likewise be late in recognizing that inflation is peaking. But, beware the transitory recession! (Especially since neither “transitory” nor “recession” has any meaning or real standard).
I agree the US consumer exhibits resilience. But to what extent were the June increases in sales encouraged by price-cutting from stores that bought too much inventory, in which they invested out of concern about supply disruption?
Clearly, China is no longer the place it once was. With all the poop being scooped up and thrown about in China, including the banks running out of money, property market mismanagement, the repression of successful capital market participants, and (I imagine, most likely) the huge kick-backs enriching individual party members – not unlike the oligarchs in Russia – I cannot wait until US corporate entities, including Apple, which today voraciously suckles the Chinese pig, find new and more reliable links in the supply chain, wherever they might be. I expect new supply chain links to be acquired, affirmed, built, and exercised within the next five years. China will then be the US adversary it always preferred to be.
An encouraging data set for the soft-landing crowd.