US consumers continue to spend despite income pressure
US consumer spending resilience is surprising given ongoing financial constraints, which is key for GDP projections. Per the full note from ING, May retail sales increased by 0.9%, surpassing expectations, indicating sustained demand despite pressures on household budgets. This trend may bolster second-quarter GDP estimates, potentially shifting market sentiment. Observers should also note the implications for USD positioning as continued spending could influence Federal Reserve policy discussions.
What the desk is arguing
The robustness of US consumer spending amid income pressure signals an important macroeconomic trend. Per the full note from ING, the better-than-anticipated May retail sales report, showing a 0.9% month-on-month increase, suggests consumers are overcoming financial headwinds. This indicates a strong consumption narrative that could positively influence second-quarter GDP growth metrics.
Notably, the control group, which provides a clearer picture by excluding volatile categories, rose by 0.7% against a consensus of 0.4%. This steadfast spending supports perceptions of consumer resilience and could cement expectations for a GDP rebound in Q2, following two subdued quarters.
Where it sits in our coverage
Our consensus target for the USD is 1.075, with a range of 1.04 to 1.12, reflecting our strategic outlook against various benchmarks. Key firms include:
This perspective aligns with jpmorgan, which sees further upside potential, whereas bofa maintains a more cautious stance positioned at the lower bound of the forecast range.
How other firms see it
Aligned firms such as jpmorgan and others advocate a bullish outlook on USD based on consumer spending resilience, while bofa provides a contrary view focused on consumer weaknesses and their potential impact.
Investors should also keep an eye on related indicators like US CPI, as inflation readings may further influence consumer spending dynamics going forward.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01US retail sales rose 0.9% in May, outperforming the 0.6% forecast, indicative of consumer resilience.
- 02The control group figures suggest stronger underlying consumer trends than indicated by headline numbers.
- 03Sustained consumer spending may influence expectations for a GDP rebound in Q2.
- 04Continued strength in consumer spending could affect Federal Reserve policy.
Market implications
Watch the USD at key levels, particularly near our consensus target of 1.075, as shifting consumer confidence and GDP forecasts may drive currency valuation. The evolving economic backdrop suggests traders should remain alert to any market reverberations following forthcoming inflation data.
Risks to this view
Should consumer spending falter more than anticipated, or inflation pressures lead to unexpected central bank actions, this could invalidate the current bullish outlook on USD. A significant downturn in retail sales or negative GDP growth would likely provoke a reassessment of market positions.
Older quick take Quick take 14:36 United States US consumers continue to spend despite income pressure The May retail sales report showed US consumers continue to spend despite weak sentiment and squeezed household finances. As such, second quarter GDP growth should show a re-acceleration after a couple of subdued quarters US retail sales remain resilient despite squeezed financial conditions and low levels of consumer confidence Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download James Knightley Chief International Economist, US Spending remains resilient May US retail sales numbers are firmer than anticipated, rising 0.9% month-on-month against the consensus 0.6% forecast. April's growth rate was revised down a tenth of a percentage point to 0.4%, but on balance this is a decent outcome.
The control group, which excludes volatile components, such as autos, gasoline, building supplies & eating out, was also better than expected, rising 0.7% versus the 0.4% consensus. That is important as it is a better guide for broader consumer spending trends, given that retail sales account for little more than 41% of total consumer spending today. Retail sales as a proportion of total consumer spending Source: Macrobond, ING "> Source: Macrobond, ING The details show that gasoline station sales rose 3.4%, reflecting higher prices, but there was a 2.3% MoM increase in miscellaneous stores after two monthly falls, while non-store retailers (such as Amazon) saw sales rise 1.5% and furniture store sales rose 1% with auto up 1.2%.
Clothing and sporting goods reported more modest growth of 0.3%, while electronics sales fell 0.5% and eating/drinking out dropped 0.1%. K-shaped consumer challenges linger Remember that these growth numbers are based on nominal dollar values. With consumer price inflation having risen 0.5% MoM in May, it suggests that we will get a respectable real personal spending figure for May of perhaps 0.2%, which leads us to pencil in 2.4% annualised consumer spending growth within the second quarter GDP report with GDP itself rising around 3% annualised.
This would be a good outcome considering that consumer confidence is at all-time lows and real household disposable incomes have fallen for three straight months. For now, households are still prepared to spend, largely funded through saving less and borrowing more. It also likely reflects the K-shaped consumer.
High income households, boosted by significant wealth gains, are spending vigorously. Meanwhile, middle and lower income households, who are under more financial strain from high prices and weak income growth, are treading water. US Retail sales Consumer spending Older quick take
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