A new look at US consumer trends will come from the May retail sales report, which will be released soon. Despite a drop in consumer confidence, wealthy Americans are still spending significantly this year. This shows a gap between how consumers feel and how much they spend.

May Retail Sales Expectations

Overall, May’s retail sales are expected to show a 0.7% decrease. However, a 0.3% increase is forecast for the control group, which does not include cars, gas, or building materials. The upcoming May retail sales report should provide a clearer view of where demand is increasing or decreasing. Even though many consumer surveys reflect pessimism, higher-income households continue to spend, which shows that economic stress is not the same for everyone. This difference between consumer opinions and behaviors may impact inflation predictions and future monetary policy decisions. The headline figure is predicted to decline by 0.7% from the previous month. This broad measure includes categories like cars and fuel, which can fluctuate due to price changes and seasonal factors. So, this decline shouldn’t be seen as a general slowdown in demand, but rather as a shift in spending priorities. Some areas, especially non-essential categories, are feeling tighter credit conditions and high borrowing costs. In contrast, the control group is expected to rise by 0.3%. This measurement removes more volatile items and is closer to how consumer spending influences GDP. This small increase highlights the ongoing strength in core consumer spending, particularly in services and everyday goods. In summary, even with the overall decline, the key areas supporting economic growth remain strong.

Interest Rate Expectations Ahead

For those forecasting interest rates, these results are significant. A small rebound in the control group suggests that demand is stable and may make policymakers think twice about easing. Conversely, a larger-than-expected drop could raise concerns about consumer spending longevity and pressure for lower policy rates. Powell has mentioned that while progress is uneven, there’s still more work needed to reach the desired inflation levels. Traders should watch the price movements in the 2s10s curve. If the curve flattens after the report, it may mean the market thinks the tightening effects have been absorbed. If it steepens, the discussion around policy risks may intensify again. We are currently in a phase where data is crucial, and the May figures will directly impact indicators of economic health. Short-term Treasury yields are particularly sensitive to surprises. Trading volumes around key expiry dates suggest many are seeking protection rather than making directional bets. As we analyze this data, shifts in demand can be identified through unusual trading volumes in shorter-dated options and specific sector ETFs. If spending remains strong among higher-income groups, there could be continued support for certain consumer discretionary investments, though not for all. We also need to keep an eye on inventory trends, as companies confident in future demand might start restocking ahead of the fourth quarter. Market reactions should be interpreted with upcoming events in mind, especially as we near the next FOMC communication window. Results close to expectations may initially reduce clear directional trends, but underlying movements indicate careful adjustments rather than sudden changes. Create your live VT Markets account and start trading now.

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