Retail Sales Highlights U.S. Economic Strength

Yields close nearly flat despite retail sales beat. Stronger than expected retail sales briefly pushed yields to intraday highs before a near immediate price reversal and ~5 bp decline to session lows. Yields then climbed gradually throughout the remainder of the day, with the 2-year ending 1 bp higher at 3.91% and the 10-year nearly flat at 4.45%. Meanwhile, the strong economic data fueled an equity rally, with the S&P 500 and NASDAQ at new all-time highs after 0.54% and 0.75% gains, respectively.

Consumers reopen their wallets in June. Retail sales grew by more than expected in June across all measurements following a notable spending pullback in May. Headline retail sales grew by 0.6% vs. expectations of a 0.1% advance and -0.9% in May. Consumer spending accelerated 0.5% and 0.6% on a core and super-core basis, respectively, versus expectations of 0.3% growth for both measurements and compared to last month’s 0.0% and 0.2% results. Ten out of 13 spending categories posted monthly increases, led by motor-vehicle sales, contrary to expectations that auto sales would weigh on growth. Today’s data were broadly viewed as a sign that household spending remains resilient despite elevated tariff uncertainty.

Daly the latest Fed official to emphasize that rate cuts shouldn’t be delayed too long. Ahead of the upcoming FOMC meeting on July 30, Fed President Mary Daly said that she expects two rate cuts this calendar year. She argued that “you can’t wait forever, because if we wait til inflation is 2%, well then we’ve lost, we’ve likely injured the economy in some way that was completely unnecessary.” Meanwhile, Fed Governor Christopher Waller reiterated his dovish stance, saying, “I believe it makes sense to cut the FOMC’s policy rate by 25 basis points two weeks from now… looking across the soft and hard data, I get a picture of a labor market on the edge.”