Retail sales slowdown prompts market bets on Fed rate cut timing

U.S. retail sales rose only modestly last month, suggesting that domestic consumers are slowing their spending into the summer, potentially providing further support to market bets on an autumn Federal Reserve interest-rate cut.

Headline retail sales rose 0.1% from April to a collective total of $703.1 billion, the Commerce Department said, shy of economists' consensus forecast of a 0.3% gain. The April total was revised lower as well, to a decline of 0.2% from the original estimate of 0%.

The closely tracked control group number rose 0.4% on the month, again missing Wall Street forecasts of a 0.5% advance. This figure, which excludes autos, building materials, office supplies, gas-station sales and tobacco, feeds into the government's GDP calculations.

The Atlanta Fed will update its GDPNow forecasting tool later in the session. Its last reading, published on June 7, suggests a current quarter growth rate of 3.1%.

Gasoline-station sales were down 2.2%, the report indicated, after Energy Department data showed the national average slipped 0.2% from April to $3.725 per gallon.

retail sales slowdown prompts market bets on fed rate cut timing

Federal Reserve Chairman Jerome Powell is searching for convincing evidence that inflation is moving lower, toward the central bank's 2% target. Chip Somodevilla/Getty Images

U.S. equity futures pared gains following the data release, with contracts tied to the S&P 500 suggesting a modest gain of around 4 points while the Dow was called 20 points to the upside. The Nasdaq, meanwhile, is priced for a 30-point bump.

Benchmark 10-year Treasury note yields fell 5 basis points to 4.272% following the data release, while two-year notes fell 6 basis points to 4.718%.

CME Group's FedWatch indicates the Fed will hold its benchmark rate steady at between 5.25% and 5.5% at its next policy meeting in July, with the odds of a September rate cut now pegged at around 62%.

Last week, the Commerce Department said inflation pressures eased notably in May, with the headline Consumer Price Index slowing to 3.3%. On a monthly basis, headline inflation was largely flat, marking the smallest rate of price increases in four years.

So-called core inflation, which strips out volatile components like food and energy, slowed to an annual rate of 3.4%, the lowest in more three years and also better than Wall Street's 3.5% forecast.

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