Summary
Highlights
Headlines are proclaiming the American consumer is 'dead' due to a reported 0.2% rise in retail sales for June, missing economists' expectations. This narrative suggests a weak economy, leading to potential Fed rate cuts and a 'buy everything' market. However, this interpretation frequently misreads the data due to price volatility.
Retail sales reports measure the total dollars Americans spend, not the quantity of goods purchased. This means that significant price changes, particularly for heavily weighted items like gasoline, can distort the headline number. When prices fall, the total dollar amount spent decreases, even if consumers buy the same amount of goods.
In June, sales at gas stations plunged by 5.3%, the largest decline across all categories. This was not due to Americans driving less, but because gasoline prices collapsed, falling 12% in wholesale and 5.7% in consumer energy prices. Adjusting for gas prices, retail spending (excluding gasoline) actually rose by a solid 0.7%.
Online sales jumped by 1.9% in June, largely driven by Amazon's Prime Day event, indicating active consumer spending. Furthermore, consumer prices fell by 0.4% in June. When prices fall, a flat nominal spending number actually means consumers took home more goods, suggesting stronger real spending than the headline implies.
Two key pieces of 'shadow data' further support a resilient consumer. First, retail margins on fuel jumped 13% in June, indicating strength for retailers despite lower sales figures. Second, jobless claims fell to 28,000 for the week ending July 11th, well below expectations, signifying a strong labor market and sustained paychecks for consumers.
Trading based on the 'dying consumer' narrative is costly, especially since the Fed has indicated its focus remains on high prices, not immediate rate cuts. The video predicts that rising pump prices in July will lead to a surge in gas station sales, making next month's retail headline appear strong due to inflation, which will also be misread by the crowd.
Instead of the headline number, investors should watch retail sales excluding gasoline, weekly jobless claims, and pump prices. These metrics provide a more accurate picture of consumer health. The video concludes that the American consumer is not dead but benefited from a temporary discount on gas, which was then spent elsewhere.