The U.S. retail sales slightly increased in August, as reported by the U.S. Census Bureau on September 17. The U.S. Retail sales rose by 0.1% month-over-month in August, down from 1% in July, but better than market expectations of -0.2%. On a year-over-year basis, retail sales grew by 2.1%, lower than the previous month’s 2.7%.

The increase this month was primarily driven by online store sales, which saw a monthly growth of 1.4%. However, this was partially offset by a 0.1% decrease in automotive-related sales and a 1.2% decline in gas station sales.

Core retail sales (excluding automotive-related sales) rose by 0.1% on a monthly basis, while double-core retail sales (excluding automotive and gas station sales) increased by 0.2%. The control group retail sales, which exclude automobile sales, building materials, gasoline stations, and food services, rose by 0.3%.

In summary, while August retail sales showed some resilience in U.S. consumer spending, certain declines may have been driven by falling prices. Nevertheless, the market appeared to overlook the retail sales data, as FedWatch indicated that the probability of a 50-basis-point rate cut had risen to 65%, up from 50% the day before.

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The U.S. Census Bureau released retail sales data on August 15. In July, retail sales increased by 2.7% year-over-year, higher than the revised 2% from the previous month. On a month-over-month basis, retail sales rose by 1%, significantly above the revised -0.2% from the previous month and the market expectation of 0.4%. The control group retail sales (excluding auto sales, building materials, gasoline stations, and food services) increased by 0.3% month-over-month, down from the previous month’s 0.9%. The growth was primarily driven by auto sales, which increased by 4% month-over-month, while core retail sales (excluding auto-related sales) and double core retail sales (excluding auto sales and gasoline stations) both increased by 0.4%.

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Additionally, the initial jobless claims data was released on the same day. The number of initial claims for unemployment benefits this week was 227,000, lower than the previous week’s 233,000 and the market expectation of 235,000. This marks the second consecutive week of decline in initial jobless claims.

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As July’s inflation data continues to normalize, consumer spending remains resilient, and initial jobless claims come in better than expected, the probability of a 25 basis point rate cut has returned to 74% (compared to last week’s peak probability of 85% for a 50 basis point cut). However, the market is still awaiting the release of the non-farm payroll data and the unemployment rate, which are currently the Federal Reserve’s top concerns, before expectations for a rate cut in September may be adjusted.

Over the past two weeks, the unexpected rate hike by Japan, coupled with weak U.S. manufacturing PMI and rising unemployment rates, sparked fears of an economic recession in the markets. Meanwhile the strengthening of the yen prompted a significant number of carry trade investors to sell assets to cover margin calls, leading to a sharp decline in global stock markets within a short period.

However, as the U.S. services PMI and jobless claims came in better than expected, along with dovish remarks from the Bank of Japan, global stock markets quickly rebounded. Given the market’s heightened sensitivity to macroeconomic changes, this week’s key economic data need to be closely watched. Below is a preview of the upcoming economic data this week, as well as potential  market outlook regarding these key indicators.

August 14:

• July U.S. CPI: In June, the U.S. CPI increased by 3.0% year-over-year, with the core CPI (excluding food and energy) rising by 3.3%. According to a survey by the Federal Reserve Bank of Philadelphia for the third quarter of 2024, it is expected that as the labor market slows and service inflation decreases, the CPI and core CPI will decline to 2.5% and 2.6%, respectively, by the end of 2024.

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• July U.K. CPI: In June, the U.K. CPI rose by 2% year-over-year, with the CPIH (including owner-occupiers’ housing costs) at 2.8%. Excluding food, energy, and tobacco, the core CPI and CPIH were 3.5% and 4.2%, respectively. According to the August MPC meeting minutes, the Bank of England expects the CPI to rise to around 2.75% by the end of 2024 due to a reduction in the impact of energy prices, before falling back to the target of around 2%.

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August 15:

• China’s July Economic Data: In June, China’s retail sales of consumer goods increased by 2% year-over-year, industrial output rose by 5.3%, and fixed asset investment grew by 3.9%. The market expects that with the summer season and a low base effect, retail sales could rebound to 2.6%. Meanwhile, industrial output is anticipated to increase to 5.4% due to sustained high growth in industrial exports, while fixed asset investment is expected to remain steady at 3.9%.

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• July U.S. Retail Sales: In June, U.S. retail sales increased by 3.0% year-over-year, with monthly growth flat. Core retail sales rose by 0.4% month-over-month, while double core retail sales (excluding autos and gasoline) increased by 0.8%, and control group retail sales rose by 0.9%. Given the slowdown in consumer spending, the market expects a modest monthly growth of 0.3% in July retail sales.

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• Japan’s Q2 Real GDP: In Q1, Japan’s real GDP contracted at an annualized rate of 1.8%, and was revised downward to -2.9% due to declines in consumption and exports. According to a survey by the Japan Center for Economic Research, economists expect Q2 2024 GDP growth to reach an annualized rate of 2.26% driven by a rebound in external demand. The Bank of Japan forecasts full-year 2024 GDP growth of 0.5% to 0.7%.

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(Photo Credit: Federal Reserve)