LIVE MARKETS-Dreary data sets the Fed's table: Retail sales, industrial output, et al

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DREARY DATA SETS THE FED'S TABLE: RETAIL SALES, INDUSTRIAL OUTPUT, ET AL

Investors were subjected to an onslaught of economic indicators on Tuesday ahead of the Juneteenth federal holiday on Thursday, and perfectly timed to coincide with the call to order of Powell & Co's policy palaver.

Most of it was underwhelming.

Consumers were not in a spending mood last month.

Receipts at U.S. retailers USRSL=ECI decreased in May by 0.9%, an abrupt acceleration from April's downwardly revised 0.1% dip and steeper than the 0.7% drop analysts expected and raising the specter of dampening consumer demand.

Drilling below the headline, the 3.5% plunge in autos/parts and the 2.0% drop in gasoline spending are the attention-getters. But without those items sales were still soft. Excluding autos and gasoline the topline would still be off 0.1%. Nonstore retail - which includes online sales - provided some upside, rising 0.9%, but food and drink services were down 0.9%.

"The resilient consumer is getting skittish," writes Brian Jacobsen, chief economist at Annex Wealth Management. "It’s not surprising to see declines in higher priced categories with a lot of tariff exposure, like autos, but the decline in food services and drinking places sales is just another tally in the column of things to watch out for."

"Growth is slowing faster than inflation is rising, so a data-dependent Fed is going to have a lot of explaining to do about why it’s not responding to the data," Jacobsen adds.

But the good news is the "control" figure, which excludes autos, gasoline, building supplies and food services - and is most closely correlated with the personal expenditures element of GDP - printed at 0.4%. That's stronger than the 0.3% consensus and marks a robust turnaround from April's 0.1% decline.

Next, industrial output USIP=ECI defied economist predictions by dipping 0.2% in May according to the Federal Reserve.

Analysts forecast a 0.1% gain, a repeat of April's upwardly revised advance.

Manufacturing output inched 0.1% higher, weaker than the 0.2% gain Wall Street was looking for.

A peak behind the curtain reveals a 4.9% jump in autos, which was offset by a 2.9% drop in utilities output. High-tech production increased 0.4%, a sharp slowdown from the prior month's 2.8% surge.

Capacity utilization USCAPU=ECI, a measure of economic slack, weakened by 0.3 percentage point to 77.7%.

"Tariffs are doing little to support investment in domestic manufacturing capacity by making foreign-produced goods less competitive," says Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics. "The uncertainty generated by the tariffs is (the) dominating influence for now."

The cost of goods imported to the United States USIMP=ECI (excluding tariffs) was unchanged in May, per Labor Department Data.

Analysts expected import prices to soften by -0.2%.

Digging deeper, a 3.7% drop in imported gasoline prices and a 0.6% dip in industrial supplies held gains in check, while a 0.2% increase in capital goods provided some upside. Excluding petroleum, import prices rose 0.2%.

Year-over-year, import prices are up a mere 0.2%.

"Subdued price reports may increase market odds of an earlier rate cut from the Federal Reserve than our baseline forecast of December, but we expect officials to remain in a wait-and-see mode," says Matthew Martin, senior U.S. economist at Oxford Economics. "We'll get a better sense with the release of tomorrow's Summary of Economic Projections."

While import price growth is well south of Powell & Co's 2% annual inflation target, import/export prices differ from other major inflation indicators with things like currency exchange rates and foreign demand thrown into the mix.

Here's a chart that shows annual import/export price growth against the dollar index, which tracks the greenback against a basket of world currencies.

In housing market news, the mood among homebuilders has unexpectedly grown even more lachrymose this month.

The National Association of Homebuilders' USNAHB=ECI housing market index (HMI) slid 2 points to land at 32, the lowest reading since December 2022 and the third lowest since 2021.

An NAHB number south of 50 indicates pessimism in the sector.

"Buyers are increasingly moving to the sidelines due to elevated mortgage rates and tariff and economic uncertainty,” says NAHB chairman Buddy Hughes. “To help address affordability concerns and bring hesitant buyers off the fence, a growing number of builders are moving to cut prices.”

And finally, business inventories USBINV=ECI were unchanged in April as expected, according to the Commerce Department, which has also reported that the private inventories element was a net contributor to first-quarter GDP as businesses scrambled to fill up their stockrooms ahead of President Trump's market-punishing tariff moves.

That honeymoon appears to be on its last legs.

(Stephen Culp)

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