US retail sales seen rising 0.2% in test of consumer resilience

June retail sales data due Thursday will show whether American consumers are maintaining spending momentum as inflation cools and geopolitical risks mount.

US retail sales likely rose 0.2% in June, a sharp deceleration from May's 0.9% gain, as consumers contend with elevated prices and renewed energy cost pressures from the Middle East conflict. The Commerce Department report, due at 8:30 a.m. New York time, will be accompanied by weekly jobless claims data expected to edge up to 218,000 from 215,000 and the Philadelphia Fed's manufacturing index, forecast to slip to 9.8 from 10.3.

"The consumer has been remarkably resilient, but the question is whether that can persist with gasoline prices pushing back above $3.85 a gallon and the labor market showing early signs of softening," said James Okafor, macro analyst at Edgen. "A miss on retail sales would reinforce the narrative that the Fed's higher-for-longer rate stance is finally filtering through to household spending."

The data comes after two consecutive days of better-than-expected inflation readings. The June Consumer Price Index came in tamer than forecast, and the Producer Price Index unexpectedly declined 0.3% — the first drop since January — as energy prices fell during a brief truce in the Iran conflict. That truce has since broken down, with the US launching strikes against Iran on Tuesday and West Texas Intermediate crude rising 1.2% to $80.25 a barrel. The 10-year Treasury yield fell to 4.55% after the PPI release, down from 4.61% before the reading, as traders priced in a greater chance the Fed can hold rates steady at its July 28-29 meeting.

The stakes are high for the Federal Reserve. Fed Chair Kevin Warsh told Congress on Tuesday that policymakers remain divided on the rate path, with nine of 17 officials penciling in at least one hike by year-end, according to the Summary of Economic Projections released in June. A retail sales print below consensus would bolster the case for the doves, while a stronger number — particularly if accompanied by rising jobless claims — would present a mixed picture that keeps the Fed on hold. Markets currently assign a 62% probability to no change at the July meeting, according to OIS pricing.

The retail sales data will be parsed for signs of how consumers are navigating an economy where home prices just hit a record $409,000 in June, according to Redfin, and a gallon of regular gasoline averaged $3.89 nationwide — up 10 cents over the prior week and well above the $2.98 prewar price. Diesel fuel, crucial to transportation and industry, was $4.94, up from $3.76 before fighting began in March.

The Philly Fed manufacturing index, while a regional gauge, offers an early read on factory activity for July. The expected reading of 9.8 would mark the third consecutive month of expansion but the slowest pace since April. Manufacturers have faced headwinds from elevated input costs and uncertainty around tariff policy, though the recent pullback in energy prices during June offered some relief.

Weekly jobless claims have remained in a narrow range around 215,000 to 220,000 for most of the second quarter, suggesting the labor market is cooling gradually rather than deteriorating sharply. The four-week moving average, which smooths out weekly volatility, stood at 216,750 as of the week ending July 4.

The last time retail sales growth slowed this sharply — from 0.9% to a projected 0.2% — was in October 2023, when the S&P 500 fell 3.2% over the following two weeks as markets repriced recession risk. A similar pattern could emerge if Thursday's data disappoints, though the backdrop of cooling inflation provides a cushion that was absent then.

This article is for informational purposes only and does not constitute investment advice.