Lower inflation & slower retail sales will revive the rate cut debate

If you missed a recap of Amazon’s earnings, you can read it HERE.

At the beginning of 2024, the futures markets were forecasting six rate cuts. 

Economic data as well as inflation has been stronger year to date. As a result, the number of expected cuts has whittled down to two.

The data today was different. 

Inflation was slightly better (as in lower inflation) while retail sales were a tad weak. This is the second month of softish retail sales. Here is what I wrote last month LINK .

Do you hear the cowbells?

Fed Chair Powell has already tipped his hand. He is leaning dovish. He is more concerned about a slowdown. If inflation stays within the same range, the futures market will reverse and start pricing in more rate cuts.

Here are the details on retail sales.

 Overall sales (excluding autos & gas) grew 3.5% year-over-year. We are slightly below the steady 4-5% growth rate, but this is a healthy range. A faster rate would stoke inflation fears.

Surprisingly, Department Store sales are on the come-back trail. This comeback wasn’t on my bingo card. The sustainability of this rebound remains to be seen.

The growth in General Merchandise sales is also steady. Sales grew 3.7% year-over-year.

Now for the Not-So-Hot Stuff.

Sporting goods continue the post-Covid hangover. Over the next 30 days, the big player, Dicks Sporting Goods and Academy will report earnings. Will the divergence continue as Dicks benefits from the strong trends from On and Hoka and Academy’s budget-focused shopper stays cautious?

Furniture purchases are not on consumers’ minds. While year-over-year sales are less bad, the two-year numbers are getting worse. The COVID rush to buy furniture and the current slowdown in existing home sales continue to weigh on this category. 

April Restaurant Sales did not turn in a Michelin start performance. Poor weather and calendar shifts (early Easter in 2024) make these comparisons noisy. I am looking forward to May and June's sales. They should be a good gauge of consumer health. A rebound in sales would point to smooth sailing again.